From Tim Ahmann, at Reuters:
U.S. producer prices rose a steeper-than-expected 0.5 percent last month as food prices jumped, the government said on Tuesday, leading markets to boost bets for another Federal Reserve interest rate hike.
However, the core producer price index, which strips out volatile food and energy costs, rose just 0.2 percent, matching Wall Street forecasts and helping to temper inflation fears.
Plus:
During the first six months of the year, producer prices have risen at just a 2.1 percent annual rate, after a 7.5 percent increase in the second half of last year.
But:
The slowdown reflected a moderation in energy price gains. That moderation, however, could prove short-lived if violence continues unabated in the Middle East.
U.S. crude oil prices hit a record high of $78.40 a barrel on Friday, but were trading around $75 a barrel in mid-afternoon on Tuesday.
What's it all about? Mixed opinion on that. From the New York Times (bringing you tomorrow's news today):
“The report showed more price pressures at earlier stages of production,” a team of Goldman Sachs economists wrote in a research report yesterday. “While not as large as May’s jumps, these are still relatively big month-on-month increases, and suggest more upward pressure on core inflation later in the year.”
But Kenneth Beauchemin, an economist with Global Insight, noting that much of the increase in June related to higher food and energy costs, wrote, “Given that these price movements are the consequence of bad luck on the supply side, and not fundamental inflationary pressures, the Fed will be satisfied with the downward move in the core rate.”
Me? I basically agree with this:
An increase in wholesale prices does not necessarily mean that prices at the retail level will rise, because companies often absorb higher costs without passing them along to the consumer. So last month’s data may not foreshadow a rise in the Consumer Price Index, which is more closely watched for signs of inflation. Consumer price data for June is to be released today.
OK, then. I'm keeping my fingers crossed for that CPI report.
An aside: If you're the type who thinks a weak economy is great inflation news (I'm not), there were some hopeful negative signs for you today. Back to Reuters:
The National Association of Home Builders, an industry trade group, said its index of home-builder sentiment dropped 3 points to 39 in July, its lowest since December 1991.
Two other reports showed U.S. chain store sales slowed last week from a week earlier, suggesting warmer-than-normal weather and high gasoline prices deterred shoppers.
A report from the International Council of Shopping Centers and UBS showed a 0.6 percent drop in chain store sales, and only a 2 percent year-on-year gain, the smallest in nearly 1-1/2 years. In its report, Redbook Research said chain store sales last week were up only 2.4 percent from a year earlier.
Sleep well.
UPDATE: The Capital Spectator suggests "there's reason to worry." The Nattering Naybob sees "a definite sign of more stagflation to come" (though I wasn't really aware we had any in the first place.)