March Producer Prices

Overall prices paid by manufacturers and wholesalers declined in March according to the Bureau of Labor Statistics’ headline Producer Price Index (PPI).  The headline number fell 0.6 percent for the month.  This follows increases of 0.7 percent February and 0.2 percent to start 2013.  Much of the headline number’s fall came from slumping energy prices; the gasoline index dropped 6.8 percent in the period.  Year-over-year, the PPI has only managed to grow by 1.1 percent.

The core rate of price increases has been slightly higher over the last year and month.  Excluding food and energy, because they are volatile, the PPI increased by 1.7 percent in the last twelve months, and it was up 0.2 percent in March.   These are still rather tame upticks.

There does not appear to be price pressure building in the earlier stages of production.  Crude goods, (think timber) fell 2.5 percent in the final month of the first quarter.  Intermediate goods, like lumber, ticked down 0.9 percent in the period.  Energy fell in each of the earlier points of production.  At the intermediate level, it fell the most since March 2009, down 4.7 percent.  Prices fell 8.5 percent at energy’s earliest stage of production.

The Producer Price Index continues to confirm our outlook on inflation.  Despite all of the money printing that the Federal Reserve has been doing, Atlas is of the opinion that it will not be inflationary in the near future.  One of the reasons for this perspective is that banks are relatively reluctant to lend and are keeping the new dollars on their balance sheets as reserves.  Until this money begins to make its way into the real economy, the likelihood of substantial upward price pressure seems remote.     (by C. Cox)