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Katharine Lau/Medill

PPI data for the last year.

Source: Data from Bureau of Labor Statistics

Producer Price Index rises 1.4 percent in January

by Katharine Lau
Feb 18, 2010

The closely watched Producer Price Index rose at a 1.4 percent seasonally adjusted rate in January, the U.S. Bureau of Labor Statistics  reported Thursday, a sign that the economy is improving. 

The increase follows a 0.4 percent bump in December and a 1.5 percent increase in November, according to data compiled by the BLS. 

Economists expected a 0.8 percent increase in the PPI, according to a Bloomberg LP survey. 

Max Clarke, chief U.S. economist with Singapore-based IDEAglobal Ltd., said the January PPI number would see a 0.8 percent increase.  Clarke said the readings should come as no surprise but cautioned that “The Fed should be doubly concerned about people’s expectations.”

“Inflation could have a lasting effect if it runs into people’s expectations,” said Clarke, who is based in New York. 

However, it would take a “transitory shock” such as a spike in energy prices to make inflation more lasting and for inflation “to have a higher impact moving forward,” Clarke added. 

Though not worried about a double-dip recession, Clarke said the economy will see “deceleration in the latter half of the year” as manufacturers begin to restock a supply chain that “was thoroughly ravaged.” 

PPI measures changes in the selling prices charged by producers for goods and services.  Because it tracks price changes as goods go through the production process, the PPI is a good early warning sign of inflation. 

Year-over-year, January’s figure is not far off last January’s 1.1 percent increase in the PPI, a fact that Clarke noted.  “The U.S. is starting to see good year-over-year rates,” Clarke said. 

The PPI for intermediate goods—final products that are used in the production of other goods—rose 1.7 percent in January, its sixth consecutive monthly increase.  The PPI for crude materials jumped 9.6 percent in January, the majority of which is a result of a 16.8 percent jump in prices for crude energy materials.  Also having an effect, though to a lesser degree, was the crude nonfood materials index, which grew 6.6 percent and prices for crude foodstuffs and feedstuffs, which increased 3.2 percent.