Bill Cara: Really, where do we stand on inflation? Tues., Oct. 17, 2006, 8:58 AM

October 17, 2006

Really, where do we stand on inflation? Tues., Oct. 17, 2006, 8:58 AM

The "headline" reads "PPI falls -1.3-pct M/M on record drop in gas prices" but the "core rate" is up a shocking +0.6 pct M/M "as motor vehicle prices soar". So where do we stand?

WASHINGTON (MarketWatch) " Wholesale prices plunged 1.3% in September as the price of energy goods tumbled at the fastest rate in 20 years the government said Tuesday.
It was the biggest decline in the seasonally adjusted producer price index in three years, the Labor Department reported. Meanwhile, the core producer price index, which excludes food and energy costs, rose a surprising 0.6%, the most since January 2005, as the prices of motor vehicles jumped at the fastest rate in more than 15 years. Economists were taken by surprise. They expected a smaller 0.7% decline in the headline PPI, and also expected a smaller 0.2% gain in the core PPI. The PPI had risen 0.1% in August, while core prices had fallen two months in a row. The mixed inflation reports shows the dramatic impact of falling crude oil prices, but also shows persistent inflation at the producer level that won't let the Federal Reserve breath easy.

In the segue to Cara's Daily Planet early today, I alerted readers to the extreme gap there would be between headline and core. Now you have seen what I meant.

I'd forget about the energy component here because prices are already on the rise. Instead, I'd look at the core rate being up +0.6 pct and just think about the implications of that high number without the temporary drop in oil costs.

In a word, I am CONCERNED. Traders are likely to overlook the reality here.

As you know, I always turn to Econoday to read what they have to say. Their report will be updated shortly.

You know, it's easy to quickly search past reports once you have the link to the current one. For example today's report is for Month 10 (October). By changing the url to 09 or 08, you immediately go back to September and August. You can also change the year, etc. I do this all the time as a time saver.

You see, I like to go back to check on the sequence of events (and expectations). That's because I am a trend and cycles analyst.

Posted by Posted by Bill Cara on October 17, 2006 08:58:22 AM | Category: Economics

Discourse

Hmmm.... the Econoday report does reflect much concern with the higher core rate, citing the increase in motor vehicles as transient.

So far, however, their prediction that this report would be good for equities has not borne out. Of course, the day is young.

Posted by: number2son at October 17, 2006 10:04 AM [link]

Sheesh ... I meant to say the Econoday report does "not" reflect much concern about the high core PPI.

Note to self: first finish coffee, clearing cobwebs from tiny brain, and then post comment.

Posted by: number2son at October 17, 2006 10:09 AM [link]

EconoDay has lost their edge IMO. They have been in the Goldilocks camp for months now, REALLY softening their tone and cheering this thing on. I expect the excellent Evelyn Tanier is gone.

Posted by: MarkM at October 17, 2006 10:16 AM [link]

The Industrial Production report was a shocker as well. Let's watch as the mo-mo's and hedgies shake this off to drive out some more shorts in their quest for profits.

Be careful out there.

Posted by: MarkM at October 17, 2006 10:21 AM [link]

bill may have perfect timing on this one
http://stockcharts.com/h-sc/ui?s=smh
the smh is looking like an abandoned baby.
qqqq the same
http://www.candlesticker.com/Cs71.asp

Posted by: Bullring at October 17, 2006 10:37 AM [link]

......but they have to close the day this way for confirmation

Posted by: Bullring at October 17, 2006 10:54 AM [link]

Is everybody else hearing the "It's okay. This is just a technical reaction to overbought conditions" chatter? Coupla days of selloff and we'll be back at it is the mantra.

Yeah that. Then you get the brick between your eyes when GDP comes in between 1.7 and 1.9%.

I am really hoping this is the start of the sell-off because The Boys have not been able to suck in the retail investor 100% like they always do. It would be nice if the hedgies and the mo-mos were stuck with a bunch of crap at the top for once. That would be MY version of social equity.

Posted by: MarkM at October 17, 2006 11:25 AM [link]

Wow, Bill, check this out:
Maybe us little guys will have a chance some day:
from the North American Securities Administration Association
http://www.sec.gov/comments/s7-12-06/jpborg7410.pdf

Posted by: flincinc at October 17, 2006 11:53 AM [link]

ALOHA !!

In the ever increasing "1984" government efforts to re-write economics there is now an attempt by those seeking re-election and the Fed to show just how bad gold is for high inflation. Gold is down over $6 on the PPI news. If the powers that be can convince the minions that gold is no longer a viable safe haven for anything then it is their belief paper FRNs and US Treasuries will reign supreme forever. Skating on thin ice is now an Economic Olympic sanctioned sport just don't do too many triple Lutzs in one spot!

Posted by: kaimu at October 17, 2006 12:16 PM [link]

Kaimu

Perhaps the Economic Olympics could market a triadic event? triple Lutz on thin ice then into the Kayak for the Donald Coxe "triple waterfall"
http://www.donaldcoxe.com/triple.html
or maybe that would be enough to finish the best "Iron Man" (person) off? :-)

Posted by: gwuk at October 17, 2006 1:52 PM [link]

Concerned? yes! But i focus more on the lack of inflation. If you factor in the sharp rise for car- and light truck prices (running of incentives, reducing output by F,GM,DCX).

look at the index time-data for:
-Finished consumer goods, excluding foods
-Capital equipment
-Containers (!)
-Finished consumer goods less energy
-Finished goods less foods and energy
-Intermediate materials less foods and energy

on this link:
http://www.bls.gov/news.release/ppi.t05.htm

i can even sense some slowdown of economic activity.

Posted by: Jansing at October 17, 2006 6:11 PM [link]

October 17, 2006

Really, where do we stand on inflation? Tues., Oct. 17, 2006, 8:58 AM

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