March Producer Price Index

Rising 0.7% in the month of March, the Labor Department’s Producer Price Index increased at almost twice the rate generally expected.  On a year-over-year basis the headline rate expanded by 6.1%, a marked increase from the strong 4.6% seen in the prior month.  Before becoming too alarmed by this harbinger of inflation, if we look at its components to get a better understanding of what is influencing the rise we find a prime example where outside events can skew the data.  Unusually cold weather in many of our nation’s key growing regions has had a seriously negative effect on yields, leading to a 49.3% jump in prices for fresh and dried vegetables, the biggest monthly increase we’ve seen in 26 years.  This is exactly why the core PPI was created, to remove such exogenous pressures.  It looks at price movements after removing both food and energy.  At the core prices rose just 0.1% for the month, and that can be attributed almost completely to a hike in the cost of gold jewelry.  On a year-over-year basis, prices at this level are up just 0.8% seasonally adjusted, actually dropping by one-tenth from February.  No doubt the Federal Reserve will consider the data friendly toward their current policy of low interest rates.