December Producer Prices

Businesses’ costs of goods were mixed according to the December reading of Producer Prices put out by the Bureau of Labor Statistics.  The headline figure, which considers all items, fell 0.1 percent; the year-over-year change slowed to 4.8 percent from the previous reading of 5.7 percent, but this is still double the rate of 2010’s 2.4 percent change.  The core figure managed to surge 0.3 percent for the month causing the 12 month rate of change to advance from 2.9 percent to 3.0 in November.

Finished consumer and capital goods cost retailers more at the end of the year.  Consumer non-durable items like soap, footwear, alcoholic beverages, and pet food all managed to end the year at least 3.0 percent more expensive than they started.  Durable goods such as flatware, floor coverings, and mobile homes, joined the greater than 3.0 percent club of 2011.  Overall, the machinery and equipment businesses buy to improve their capital cost retailers of these wares about 2.3 percent more for the year.  The agriculture and construction subset of machinery and equipment increased by more than 3.0 percent; pumps and compressors prices came close to a 4.0 percent cost hike.  The production pipeline did show some slowing may be in the making.

The crude (think timber) and intermediate (now think paper or lumber) section of the report suggests there may be some relief on the horizon as each of them fell for the month.  They still managed substantial year-over-year increases, so upward cost concerns are warranted.  Financial markets are not fond of too much inflation, so the recent price slips in the earlier stages of production is welcome.  One month is not a trend, but a trend must start somewhere, right?  (by C. Cox)