Producer Prices Surge in November; Inflation Back?

The U.S. Labor Department is playing the role of coy inflation vixen better than any Hollywood ingénue could ever dream.  As if on cue, the Labor Department today muddied the waters that economists use to predict future inflation by releasing a producer price index (PPI) for November that saw the largest increase in producer prices since 1974.

This, of course, comes on the heels of last week’s Labor Department release that showed consumer prices in November were flat, against expectations.  Also, October’s PPI registered a 1.6% drop.

So what gives?  According to some economists, car and truck prices are the culprits.  The wild variability in automobile prices from month-to-month is giving the readings their schizophrenic tendencies.  In fact, a Morgan Stanley economist told Marketwatch, “"The volatility in the motor vehicle category of the PPI has gotten totally out of hand.  These data should be dismissed out of hand."

Another economist, commenting on the impact of the PPI, went so far as to say that the Fed simply does not care about the PPI.  “We continue to pound the idea that the PPI just does not matter."

Economists surveyed by various media outlets expected a rise in the PPI of around 0.7%, although all noted that there was quite a bit of disagreement in the forecast.  A handful of analysts expected a sharp rise in November.

The core PPI, a measure that strips out energy and food prices and a measure more closely considered by the Fed, rose 1.3% in November.  Without the wild fluctuations in automobile prices, the core PPI was up only 0.2% for the month.