Thursday, February 16, 2012

Dear Paul Krugman--Producer Price Index: Headline 0.1, Ex-Food/Energy +0.4, Largest 'Core" rate in Six Months

I can't wait to see how Dee Jay Chunky-K spins this platter.

That core number is the last of the 2011 commodity spike working its way through the system.
Oil, gasoline and grains then started dropping so the headline number came down.
Wait for next month when February's pop in both grains and gasoline gets counted.

First up,The Market Ticker:
Hmmm... do I believe it?
The Producer Price Index for finished goods advanced 0.1 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Prices for finished goods declined 0.1 percent in December and moved up 0.2 percent in November. At the earlier stages of processing, the index for intermediate goods fell 0.4 percent in January, and crude goods prices increased 1.5 percent. On an unadjusted basis, the finished goods index advanced 4.1 percent for the 12 months ended January 2012, the smallest year-over-year rise since a 3.6-percent increase in January 2011. (See table A.)
The core number was the largest since July, but mirrored last January.  The 12 month rolling change was down from recent months but above the 12-month ago figure.  A large part of the core increase was pharmaceuticals, which is a monstrous kick in the nuts for low and middle-income people, along with the federal government's fiscal sustainability....MORE
And from Economic Policy Journal:
Core Producer Prices Show Largest Gain in 6 Months 
I believe that headline price numbers (which include food and energy prices) rather than core price index numbers (which do  not) are a better indication of price pressures in the economy. That said, Keynesian economists, such as Paul Krugman, are big fans of the core index. Krugman also, until recent weeks, feared price deflation.

The core producer price index just announced by the Bureau of Labor Statistics came in at plus 0.4%, an annualized rate of 4.8%.  So based on Krugman's own favored data point, the numbers show his deflation fear is way off base. Absurd is not too harsh a word.

The headline PPI showed a lower 12-month gain through January of 4.1%,  largely because of a decline in January in food and energy. But if you think food and energy are going to stay down, I have a fog making machine in San Francisco that I would like to sell you....MORE