PPI Ex Food And Energy Jumps 0.5% On Expectations Of 0.2%, Fresh And Dry Vegetable Prices Jump By 13.7%

The PPI including food and energy came at 0.8%, in line with expectations, and a decline from the previous 1.1%. Ex food and energy, Producer Prices jumped from 0.2% to 0.5%, and over 100% higher than expectations of 0.2%. Somehow, food PPI increased by just 0.3%, the lowest since August, and once again making one wonder which Department of Truth is more unbelievable: ours or the Chinese. From the release: The Producer Price Index for finished goods rose 0.8 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This advance followed increases of 0.9 percent in December and 0.7 percent in November and marks the seventh straight rise in finished goods prices. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 1.1 percent, and the crude goods index rose 3.3 percent. On an unadjusted basis, prices for finished goods advanced 3.6 percent for the 12 months ended January 2011.... The index for finished consumer foods moved up 0.3 percent in January, the fifth consecutive monthly increase. A 13.7-percent advance in prices for fresh and dry vegetables was the main factor in the January rise in the finished consumer foods index...In January, the index for intermediate foods and feeds moved up 0.4 percent for the second consecutive month. A 2.7-percent rise in beef and veal prices accounted for about forty percent of the January increase in the intermediate foods index.

Elsewhere, January housing starts increased by 596K from a downward revised 520K, on expectations of 539K, while permits dropped from a downward revised 627K to 562K, on expectations of 559K. All continue crawling along the bottom, as nobody buys anything on credit (see MBA refi index data earlier). Furthermore, the surge was due mostly to a jump in multi-family units (171k compared to 95k in December). Single unit starts actually dropped from 417K to 413K. Oddly enough, snow was not blamed: not seasonally adjusted starts were 458K, while NSA permits were 431K. Looks like the seasonal adjustment here was more than enough to account for the collapse in true numbers...

PPI Release.

Housing Starts Release.

And here is Goldman's take:

BOTTOM LINE: Core producer price indexes surge at both finished and intermediate goods stages of processing, with no single component responsible for these significant upside surprises. Housing starts also rise more than expected, but increase is entirely in multifamily sector and appears due to efforts to start construction before changes in building codes.

PPI core index +4 (2, +2)
Housing starts 0 (1, 0), including a -1 judgmental adjustment for composition.

Producer price index +0.8% in Jan (mom, +3.6% yoy) vs. GS +0.9%, median forecast +0.8%.
Ex food and energy +0.5% in Jan (mom, +1.6% yoy) vs. GS and median forecast +0.2%.
Housing starts +14.6% in Jan (mom, -2.6% yoy) vs. GS +7.5%, median forecast +1.9%.
Permits -10.4% in Jan (mom, -10.7% yoy) vs. median forecast -10.9%.

1. The core indexes of the producer price index surged in January-up 0.5% for finished goods and 1.0% for intermediate goods. In the case of the finished goods component, the increases were sprinkled widely enough that no single factor can be blamed. Scanning the report, pharmaceuticas, tires and tubes, sanitary paper products, toys and games, sporting goods, commercial furniture, and truck trailers all posted monthly increases of 1% or more. In the intermediate sector, prices of industrial chemicals accounted for roughly ¼ of the 1.0% increase, according to the Bureau of Labor Statistics. Data for prior months were revised to update seasonal factors.

2. Although this was a huge and unexpectedly diverse increase in the core finished goods index, we would be reluctant to make much of it in terms of implications for core consumer inflation, as correlations between the two have been much weaker in the past 25 years than before. Surprisingly, food and energy were fairly tame, rising 0.3% and 1.8%, respectively.

3. Housing starts rose 14.6% in January to 596k, as a 77.7% surge in multi-family starts outweighed a 1% drop in single-family starts. Moreover, there were small downward revisions to December. Permits for new construction, however, fell 10.4%. In particular, permits for multi-family houses-which tend to have most predictive power for future housing activity-slumped by 23.8%. As noted last month, permits rose sharply at year-end 2010 to beat changes in building codes that went into effect in several states; this had a pronounced effect on the multifamily figures that will be fleeting.


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