Tuesday, May 17, 2005

The Producer Price Index

It rose 0.6 in April, continuing the trend of March of 0.7 increase. This does not mean that Inflation pressure is lessening. A sharp increase one Month will lead to following reduced increases in following Months, until there is another sharp spike, or a leveling off of Prices for a number of months. This pattern emerges due to Producers only periodically altering their Price schedules, because of the Cost of changing their Price schedules (notification to Wholesalers and Retailers of the Price changes, issuance of new catalogues, etc.). Such Price increases generally extend in excess of a Quarter, as Producers possess varying Evaluation formulas to determine Prices, and they are set to trip at different Period dates. Widespread gain in the PPI will invariably incur successive Months of gain, due to the process.

The real Economic worry consists of the 15.9% year over year increase in Energy prices. No One can validly strip Fuel price increases from the next PPI reading, it stops being volatile and becomes statistical gain. The only thing to reverse this gain is a reduction of that 15.9% increase over last year. Sensible Economists actually state that stripping of volatile Prices ends by the third consistent Quarter.

Manufacturing output was down 0.2, after a 0.1 gain in March, but what does this mean? The reduction comes in lower Vehicle production, the same thing which held down the March reading. Why is Vehicle production down? Car Companies are not producing or selling the lines most favored before the Energy prices increases--SUVs, and the high-powered Light Trucks, simply because they are Gas-hogs. Let no Economist snow you, the American economy suffers from high Energy pricing. lgl

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