Wednesday, March 16, 2011

U.S. Producer Price Index Shoots Up

Thanks to the 1.6% rise in the Producer Price Index for February, the unadjusted PPI is up 5.6% from where it was a year ago. The main villain was food price hikes: food rose the most in a month since 1974. Excluding food and energy, though, the core rose 0.2% in line with expectations.

However, expectations for the unadjusted PPI were for only a 0.7% increase. The Fed pays attention to the core rate, so its decision to stay the course yesterday will be reinforced.

The PPI number came out at 8:30 along with the awful housing-start figure. Putting the two together suggests the Fed will continue an accomodative policy. There's already whispers about a new quantitative-easing program even though none has been announced. As noted in the overnight report, gold yawned when the numbers came out - although those data could have limited a pullback that kicked in at 9:15. Within a half an hour, the metal rallied enough to wipe out that decline.

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