September Producer Prices

Inflation for the country’s producers flared up in September with a month-over-month increase of 0.8 percent after no change in August.  In the last twelve months such costs have gone up 7 percent.  Stripping out food and energy makes the core figure look better as the changes were 0.2 percent for the month and 2.5 percent year-over-year.

Consumer goods really gained some momentum this month by putting in a 1 percent increase.  Energy was the leading component, rising 2.3 percent.  Gasoline, after falling in August, surged 4.2 percent.  Food managed to gain 0.6 percent.  Even after excluding these volatile components, consumer goods increased 0.3 percent for the month.  Price increases in the consumer goods portion of the report may end up hitting the prices Americans pay when they check out from their favorite merchants.

Another area worth paying attention to is the crude level of production.  The capacity utilization portion of another indicator we watch, Industrial Production, shows we are using more of our output resources than average in this portion of the manufacturing cycle.  This means the manufacturers will need to raise prices or find a way to increase production.  The former seems to be happening as the prices for crude goods advanced 2.8 percent in a month, and the increase was not pushed by food or fuel.

Atlas has continued to stick with the viewpoint that inflation will not be a long-term problem. We have been adamant that the demographic and debt issues facing the developed nations will keep demand for goods below historic levels.  This month’s PPI report is leaning heavily against us, but if this economy transitions from the slow growth period we are in now into outright contraction sometime in the next year as we believe, our deflationary assumptions are likely to win out.