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All is not well in paradise. Producer prices rose 2.4% in November. While this the first gain this year, the size of the jump was much more than expected and the highest since October 2008. At than time we were coming off record oil prices. Analysts had expected a meager 1.6% rise, a surge in energy prices in the past month contributed to a much higher rise.
The Federal Reserve is meeting today and tomorrow. The Fed will then issue its policy statement on interest rates. It is expected that interest rates will remain low. All eyeballs are on whether the Fed will still include the words: "Extended period."
The Labor Department reported that gasoline prices rose 14.2% last month. Oil companies usually raise prices going into a holiday season. They mask the increase by saying that there are more drivers on the road.
Core producer prices, which exclude food and energy, also rose more than expected. They climbed 0.5% last month, after a drop of 0.6% in October.
On a year to year basis, the core producer price index rose 1.2%, versus an estimate of 0.9%. The reason for the rise here was a sharp increase of 4.2% in light truck prices.
What does all of this mean? Notwithstanding the Fed's insistence that we shouldn't worry about inflation, the numbers are saying that inflation is creeping into the economy. It is not long before the increases in producer prices work themselves into the CPI and hit the consumers' pocketbooks.
Should the Fed raise interest rates to stop inflation?
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Reader Comments (Page 1 of 1)
1-19-2010 @ 9:02PM
Peter Van Schaik said...
I think the question is really "Would you prefer inflation or a deflationary depression?" An anti-inflationary stance will benefit a few; anti-depression tactics will benefit many. Your preference depends primarily on which side of the fence you dwell. http://jpetervanschaik.googlepages.com