January Producer Prices

The costs associated with producing finished goods rose by 0.1 percent in January after falling by the same percentage in December according to the Bureau of Labor Statistics.  This continues a recent pattern of subdued moves in this indicator that started in October.  Prices for goods earlier in the production process (crude and intermediate) were mixed, but this is normal.

Costs in the earlier stages trended lower during most of 2011, and it appears the lower rates are starting to make their way into finished products.  The year-over-year price increase of 4.1 percent for final products was the smallest since January 2011 when it was 3.6 percent.  Food and energy prices fell, but items excluding food and energy increased by 0.4 percent.  To put this into perspective, “core” price changes ranged from -0.1 to 0.5 percent last year, so there is nothing alarming about this figure.
 
This has been an unusually mild winter, so many are concerned about the impact of seasonal adjustment in future reports.  In order to get rid of the calendar influence, Atlas took a look at non-seasonally adjusted year-over-year changes to intermediate and crude prices, and January’s reading for each of them is the lowest in the last twelve months.  We interpret that as evidence which supports our low inflation expectations.