Best Financial Markets Analysis Article The Producer Price Index (PPI) of Finished Goods rose 1.6% in February following a 0.8% gain in the prior month. A 3.9% increase in food prices and a 3.3% jump in energy prices explain a large part of the increase in the headline number. Higher prices for natural gas (+3.2%), gasoline (+3.7%) and heating oil (+14.6%) contributed for the noticeably higher energy price index. The February increase of food prices (+3.9%) is the largest since November 1974 (+4.2%).

The core PPI, which excludes food and energy, rose 0.2% in February, following gains in the December (+0.2%) and January (+0.5%). The year-to-year increase of the core PPI is 1.9% and it has moved up 3.9% in the last three months. These are not favorable readings. The key is the extent of passthrough to retail prices. In recent years, the passthrough from core wholesale prices to core consumer prices is weak (see Chart 2). Prior to the mid-1980s, there was a stronger positive relationship with wholesale and retail prices.

But the fact remains that higher costs of materials have to be accounted for or firms have to experience a reduction in profits. Margin squeeze cannot prevail for too long and higher wage costs also have to be considered. For the present time, the Fed is in a favorable spot with contained growth of wages and retail prices. Also, food prices have dropped in recent days, implying that the increase in food prices during March may not be repeated. The direction of energy prices remain less certain (see Chart 4).

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com
Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Only logged in users are allowed to post comments. Register/ Log in

The Market Oracle is a FREE Financial Markets Forecasting & Analysis web-site.
(c) 2005-2024 MarketOracle.co.uk (Market Oracle Ltd) - Market Oracle Ltd asserts copyright on all articles authored by our editorial team and all comments posted. Any and all information provided within the web-site, is for general information purposes only and Market Oracle Ltd do not warrant the accuracy, timeliness or suitability of any information provided on this site. nor is or shall be deemed to constitute, financial or any other advice or recommendation by us. and are also not meant to be investment advice or solicitation or recommendation to establish market positions. We do not give investment advice and our comments are an expression of opinion only and should not be construed in any manner whatsoever as recommendations to enter into a market position either stock, option, futures contract, bonds, commodity or any other financial instrument at any time. We recommend that independent professional advice is obtained before you make any investment or trading decisions. By using this site you agree to this sites Terms of Use. From time to time we promote or endorse certain products / services that we believe are worthy of your time and attention. In return for that endorsement and only in the cases where you purchase directly though us may we be compensated by the producers of those products.