{"id":403,"date":"2010-04-23T10:45:00","date_gmt":"2010-04-23T14:45:00","guid":{"rendered":"http:\/\/www.intuitiveinvestor.com\/web\/?p=403"},"modified":"2018-08-19T10:19:03","modified_gmt":"2018-08-19T14:19:03","slug":"producer-price-index-up-moderately","status":"publish","type":"post","link":"https:\/\/jasonapollovoss.com\/web\/2010\/04\/23\/producer-price-index-up-moderately\/","title":{"rendered":"Producer price index up moderately"},"content":{"rendered":"

Yesterday\u00a0saw the release of the data about the producer price index (PPI), a major\u00a0gauge of inflation.\u00a0 In March the PPI was up 0.7% once adjusted for seasonality relative to the February figure.\u00a0 It\u00a0is typical of inflation data to back out the effects of both food and energy prices because of their volatility.\u00a0 The adjusted figure is known as the “core” inflation number.\u00a0 In March that figure was up 0.1%.\u00a0 The data for the preceding year (March ’09 to March ’10)\u00a0showed that PPI was up 6.0%.\u00a0 Again, once you strip out food and energy prices to get to the core number the PPI was up 0.9% over the past year.<\/span><\/p>\n

Analysis:<\/strong> Inflation and interest rates are intimately mated.\u00a0 Inflation is the overall price level in the economy.\u00a0 Many economists, including me, feel that inflation above a level of 2-4% is an indication that there is too much money in the economy.\u00a0 When there is excess money, people spend it.\u00a0 When businesses notice people are spending more money or spending money more frequently on their goods, they raise their prices, resulting in inflation.\u00a0 Interest rates\u00a0are essentially\u00a0the price of money.\u00a0 When interest rates are too low\/when money is too cheap, people use too much of it, often resulting in inflation.\u00a0 Think: the dot.com and real-estate bubbles.<\/span><\/p>\n

Because the Federal Reserve has setting interest rates as one of its responsibilities, the Federal Reserve has to monitor inflation data.\u00a0 While it is traditional to back out food and energy prices in gauges of inflation, the fact is that food and energy are huge proportions of the U.S. economy.\u00a0 It really doesn’t get any more basic in terms of staples than those two categories of goods.\u00a0 It would be interesting to be a “fly on the wall” within the Federal Reserve right now.\u00a0 There are three broad areas of inflationary pressure right now: food, energy and asset prices.\u00a0 By asset prices I mean the stock market.\u00a0 The stock market is only moderately overvalued right now in my opinion.\u00a0 But nonetheless, asset prices are starting to rise again.\u00a0 This in an environment in which huge amounts of economic stimulus (money) was pumped into the economy by the Federal government, in conjunction with short-term interest rates that are basically 0%.\u00a0 That means there is a huge amount of cash floating around that will eventually lead to inflationary pressures.\u00a0 So the Fed needs to act soon.\u00a0 The question is, are they looking at the “core” data, or the actual hard data on inflation?<\/span><\/p>\n

My guess is that the Fed is looking at both pieces of data.\u00a0 In particular, that 6.0% up over the last year is a big, big move in inflationary pressure.\u00a0 Therefore, in my opinion, it is almost certain that the Federal Reserve will be raising interest rates sometime this year.\u00a0 Most likely in the autumn.\u00a0 The reason I am predicting this is that they need to see traction in the unemployment section and a rise in corporate revenues.\u00a0 Once they have seen evidence of those data increasing they will be compelled to raise interest rates.\u00a0 My own feeling is that the second quarter economic data will start to definitively show growing revenues at businesses and show an improvement in unemployment.<\/span><\/p>\n

Importance grade:<\/strong> 3; the PPI data only confirms what is generally well known.\u00a0 The economy is improving and prices are moving upward from bargain-basement recessionary levels.\u00a0 My prediction on interest rates above is (stop the press) in-line with the consensus and the PPI data only serves to reinforce my view.<\/span><\/p>\n

Jason<\/span><\/p>\n","protected":false},"excerpt":{"rendered":"

Yesterday\u00a0saw the release of the data about the producer price index (PPI), a major\u00a0gauge of inflation.\u00a0 In March the PPI was up 0.7% once adjusted for seasonality relative to the February figure.\u00a0 It\u00a0is typical of inflation data to back out the effects of both food and energy prices because of their volatility.\u00a0 The adjusted figure […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[3],"tags":[],"class_list":["post-403","post","type-post","status-publish","format-standard","hentry","category-the-blog"],"_links":{"self":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/403","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/comments?post=403"}],"version-history":[{"count":0,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/posts\/403\/revisions"}],"wp:attachment":[{"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/media?parent=403"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/categories?post=403"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/jasonapollovoss.com\/web\/wp-json\/wp\/v2\/tags?post=403"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}