December Producer Prices

Prices paid by producers fell in December according to the latest data from the Bureau of Labor Statistics.  The decrease is the third in a row for the headline figure.  Excluding food and energy, the “core” measure ticked up 0.1 percent after a similar increase in November.  Year-over-year, the price measure has increased 1.3 percent.

Falling food and energy prices kept the headline number below zero.  Food prices decreased by 0.9 percent, and energy fell 0.3 percent.  Leading the food price fall was the beef and veal index which fell 4.8 percent.  Fresh and dried vegetables also helped to lower prices as did the index for cheese.  Gasoline expenses dropped 1.7 percent, leading the energy goods category lower.  Energy has fallen for three straight months.

Contrary to finished goods, prices in the earlier stages of production may be pointing to upward cost movement in the future.  Intermediate goods (think flour) ticked up 0.3 percent.  Intermediate energy goods rose 0.9 percent.  Even excluding food and energy, intermediate goods rose 0.2 percent.  Crude goods (think wheat) jumped 2.5 percent and put in its sixth monthly increase in as many months.  With an advance of 7.2 percent, energy led the increase in this stage of production as well.  Even without food and energy, the crude stage of production experienced a 1.1 percent uptick.

With the demographic, savings, and debt characteristics of America, Atlas does not consider inflation to be an ongoing concern.  This does not preclude the possibility of periods of upward price pressures.  If the earlier stages of production are an early indication of the direction of prices, the economy may be approaching a period of higher costs.  It is just that Atlas does not think it will be either an excessive or persistent phenomenon.  (by C. Cox)