PPI doubles Wall Street Expectations

Giving further credibility to growing suspicions that Fed Chairman Ben "there ain't no stinkin' inflation" Bernanke lives in a cocoon and has been able to somehow miraculously suspend his body's need for actual food, we get the news today that the Producer Price Index, which measures prices at the wholesale level, climbed to its highest level in more than two years.

DJ UPDATE: US Jan Producer Prices +0.8%; Core PPI +0.5%

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Wed Feb 16 09:16:43 2011 EST

   (Updates with analyst comment, details.)

   By Jeff Bater and Luca Di Leo
   Of DOW JONES NEWSWIRES


  WASHINGTON (Dow Jones)--Underlying wholesale prices in the U.S. climbed
during January to their highest in more than two years as prescription prices
rose, which may raise concerns about inflation as the economy accelerates.

  The so-called core rate of inflation was more than double what Wall Street
expected. Nearly 40% of the advance was due to a surge in prices for
pharmaceutical preparations.

   The index of producer prices, which measures how much manufacturers and
wholesalers pay for goods and materials, rose a seasonally adjusted 0.8% in
January from December, the Labor Department said Wednesday. The rise was driven
by higher energy prices.

   But core prices, which strip out volatile food and energy items and are
considered a more reliable indicator of inflation, increased 0.5% last month.

   Economists polled by Dow Jones Newswires were expecting a 0.9% increase in
overall producer prices and a 0.2% increase in the core index.

   The core rate was the highest since October 2008, when it climbed 0.8%.
"Evidence of an inflationary rebound continue to pour in," Miller Tabak analyst
Dan Greenhaus said.

   To be sure, inflation pressures remain quite low. Year over year, the core
index was up just 1.6%, in line with the Federal Reserve's mandate of price
stability.

   The U.S. economy has been picking up speed in recent months amid rising
international commodity prices, fanning fears about inflation. But the
spillover into final consumer prices in the U.S. has been very limited so far
and recent declines in crude oil and natural gas prices should provide some
relief on energy prices in February.

   U.S. retailers and manufacturers have been reporting rising costs but
haven't been able to pass their added overhead to consumers because of
competition and cautious spending by Americans. The U.S. jobless rate remains
elevated at 9.0%, keeping a lid on spending and wages.

   Wednesday's data said energy prices rose 1.8% in January from December, with
increases in gasoline and diesel fuel.

   Food prices rose only 0.3% last month.

   As for other goods that influence the core index, prices climbed for plastic
products, alcoholic beverages, commercial furniture, and jewelry.

   With underlying inflation low, the Fed resumed buying government bonds in
November to boost jobs and the economy in a $600 billion program that is due to
end in June. A top Fed official Tuesday warned that any further move by the
central bank to reduce unemployment could bring high inflation. Richmond Fed
President Jeffrey Lacker said the central bank is keeping a close eye on
inflation, especially now that the U.S. economy is stronger and global food and
energy prices are high.

   Prices of raw materials, known as crude goods, rose by 3.3% in January from
the previous month.

   Intermediate prices in the pipeline climbed 1.1%.

   Economists expect a report out Thursday to show consumer prices rose a
monthly 0.3% last month, but underlying inflation likely rose just 0.1%.


  -By Luca Di Leo and Jeff Bater, Dow Jones Newswires; 202-862-6682;
luca.dileo@dowjones.com


  (END) Dow Jones Newswires

  02-16-11 0916ET

  Copyright (c) 2011 Dow Jones & Company, Inc.