Thursday, June 14, 2007

The PPI is Up in May Due in Large Part to Higher Energy Costs

The economy is beginning to feel the ripple effect as higher energy prices filter through the economy at large. From Bloomberg:

The 0.9 percent increase followed a 0.7 percent rise in April, the Labor Department said today in Washington. So-called core prices, which exclude fuel and food costs, rose 0.2 percent.

The report underscores Federal Reserve concerns that inflation won't moderate as forecast, economists said. Growing demand from overseas has pushed up prices for raw materials such as fuel and metals, giving businesses reason to try to pass on higher costs to customers.

``We have a lot of energy-price pressures that are still working through the system,'' said Stephen Gallagher, chief economist at Societe Generale in New York. . . . .

Yields on Treasury securities rose after the report showed inflation accelerated. The yield on the benchmark 10-year note increased to 5.22 percent at 8:52 a.m. in New York from 5.20 percent late yesterday.

Producer prices rose 4.1 percent from May 2006, the biggest year-over-year increase since June 2006.

Prices excluding food and energy rose 1.6 percent from a year earlier, following a 1.5 percent year-over-year gain the prior month.

Energy prices jumped 4.1 percent last month, the biggest increase since November, after rising 3.4 percent in April.

Today's report showed food prices dropped 0.2 percent in May, led by the biggest decline in vegetable costs in 5 years.

The producer price index is one of three inflation gauges reported by the government. A Labor report yesterday showed prices of goods imported into the U.S. rose more than forecast in May on higher costs for oil and industrial supplies.

The third inflation gauge is the CPI, which is due out tomorrow.

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