Producer Inflation Rises in April on Commodities

By Daniel Indiviglio

Rising food and energy prices pushed up producer prices in April. All three producer price baskets -- finished, intermediate, and crude goods -- saw prices rise. For finished goods, prices increased by 0.8% last month. That's nearly the same as the 0.7% rise in March. At this point producer prices appear to be steadily rising at moderate levels.

First, here's the chart for the Producer Price Index for finished goods, from the Bureau of Labor Statistics:

ppi 2011-04.png

You can see that April's value was largely in-line with what we've seen over the past five months, if not on the low side. Of course, it's much higher than what we saw during the eight months prior, when producer prices were actually declining at times.

Is it time to worry about inflation? At this point, most of the reason for the prices rising can be attributed to food and energy. Their prices increased by 0.3% and 2.5% for finished goods, respectively, in April. Meanwhile, core inflation -- which excludes those two groups of goods -- increased by just 0.3%. Again, this is largely in line with what we've been seeing lately:

ppi 2011-04 core.png

Again, core inflation has risen a bit this year, but certainly does not appear to be out of control.

The prices of intermediate and crude goods increased more than prices for finished goods, by 1.3% and 4.0%, respectively. These are also largely in-line with what's been seen over the past six months or so. They were each driven by food and energy as well, without which their rates of inflation were 1.1% and 2.6%, respectively. Those increases for crude goods might seem high, but it tends to be a very volatile statistic. In March, it actually declined by 0.5%.

Inflation is clearly rising at this time. Should we worry? The Federal Reserve probably isn't. Indeed, it is likely pleased with this increase. After all, its latest round of monetary stimulus aimed at raising inflation slightly, to alleviate deflation concerns. It appears to have accomplished that goal, at least on the producer level. We'll know more about consumer inflation when the BLS releases its separate report tomorrow.

This article available online at:

http://www.theatlantic.com/business/archive/2011/05/producer-inflation-rises-in-april-on-commodities/238792/