Sometimes, the headlines are just plain confusing. Here is the opening, from Forbes.com, on the February producer price index report:
Wholesale Inflation Slips 1.4 Pct. in Feb.
But then there was this, from TheStreet.com...
PPI Sends Mixed Signals
... and this, from Reuters:
US rate futures sag as PPI fuels inflation fears
Well, if you've been paying attention, you already know that the answer is in this headline, from MarketWatch:
PPI falls 1.4% on sagging energy prices
Core rate rises more-than-expected 0.3% in February
The article continues:
U.S.
wholesale prices plunged 1.4% in February on lower food and energy
prices but core prices were surprisingly high for the second straight
month, the Labor Department reported Tuesday.
"All is not quiet on the inflation front," said Michael Gregory, an
economist for BMO Nesbitt Burns. "Commodity prices and capacity
constraints still pose some inflation risks."...
In the past year, the PPI has risen 3.7%, compared with 5.7% last month.
The core rate has accelerated to a 1.7% increase in the past 12 months,
compared with 1.5% a month ago.
Worried? A few years back, the Jonathon Weinhagen took a look at what we think we know about the relationship between producer prices and broader measures of consumer prices. If terms like "VAR", "variance decompositions", and "impulse responses" mean something to you, you may want to take a look at
his article, which appeared in the November 2002 edition of the Monthly Labor Review. If that doesn't sound too interesting to you, here is what Jonathon concluded:
Several authors have investigated the causal relationship between commodity prices and consumer inflation... The common finding in the majority of these studies was that the power of commodity prices to predict CPI inflation has diminished since the 1980s...
A visual examination of price movements shows that, during the 1970s and 1980s, changes in the indexes for the prices of crude and intermediate goods often preceded changes in the CPI. Since the early 1990s, however, price movements at early stages of processing do not appear to have foreshadowed movements in the CPI...
... [formal statistical tests] illustrate that, from 1974 to 1989, price movements in crude, intermediate, and finished goods were transmitted forward to the CPI. In comparison, from 1990 to 2001, only changes in the PPI for finished goods caused movements in the CPI...
Taken as a whole, the results from the various empirical tests suggest that there was significant forward price transmission in both subperiods examined. However, from 1990 to 2001, price transmission from the earlier stages of processing—crude and intermediate goods—to the later stages of processing—finished goods and the CPI—was
weaker relative to the earlier subperiod. By contrast, the causal price relationships between the finished-goods index and the CPI have strengthened since 1990.
Again from the MarketWatch article...
... core intermediate goods prices rose 0.5% in February and are now up
4.8% in the past year. Core intermediate goods prices are a key measure
of commodity inflation pressures.
... but:
Finished capital goods prices rose 0.1% in February.
That, I think, puts things in a little better light.
