This morning’s update on wholesale prices brings news that inflation may not be going quietly into the sunset just yet.
Producer prices rose 0.6% last month, up sharply from the 0.2% decline in June, the Bureau of Labor Statistics reported today. But that’s a straw man. Energy was the culprit, courtesy of July’s sharp rise in crude oil–a rise that’s since pulled back.
It’ll be tougher explaining away the rising trend in core PPI, however. As our chart below illustrates, PPI excluding food and energy continues bubbling higher on a rolling 12-month basis. For the year through July, core PPI jumped 2.4%, the highest pace in nearly two years.
The optimistic view is that the surge in 12-month core CPI is due to “technical reasons”–the falling off of a negative number in the rolling calculation. In other words, the -0.5% for July 2005 drops out of the latest update for the last 12 months, replaced by 0.4% for August 2005. Meanwhile, last month’s core PPI was just 0.1%, down from 0.3% in June. Of course, it’s the longer-term trend that ultimately matters rather than the number from a given month. As such, the above chart is what it is. Perhaps next month will provide evidence that the current 12-month surge was a one-time event; perhaps not.
Meanwhile, the trend as it currently stands seemed to have caught the attention of traders in Fed funds futures. A number of contracts dropped sharply in price in early trading this morning after the PPI news, suggesting that the prospects for a rate cut may have dimmed, at least for the moment.