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Wholesale prices inch up
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December 10, 1999: 11:10 a.m. ET
November PPI rises 0.2%, core rate unchanged, showing inflation in check
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NEW YORK (CNNfn) - U.S. producer prices rose as modestly as expected in November, showing most economists and investors that -- at least at the wholesale level -- inflation remains under control.
The Producer Price Index rose 0.2 percent last month, the Labor Department reported, matching analysts’ forecasts and reversing October’s 0.1 percent decline. The core rate, which excludes volatile food and energy prices, was unchanged last month, compared with the 0.1 percent gain expected and the 0.3 percent increase registered in October.
Bonds and stocks advanced after the report’s release as investors concluded inflation remains subdued, at least for the time being. Tame costs on the production line typically mean stable consumer prices, since producers don’t have rising expenses to pass on to buyers. Bonds held onto the gains, while stocks gave them up by mid-morning.
"This is a good report which should calm some of the fears sparked by the September-October data,” said Ian Shepherdson, chief U.S. economist with High Frequency Economics.
Muted gains
November’s muted gain follows several months of up-and-down numbers that left financial markets with mixed signals about the pace of inflation. September’s index registered the biggest monthly jump in nine years.
Still, the uncertainty about inflation prospects may not be completely out of investors’ or Federal Reserve policy makers’ minds, according to Gary Thayer, chief economist of A.G. Edwards.
Click here for the Labor Department’s detailed report
"I think inflation is still somewhat of a concern to the Fed but it’s not getting a lot worse, so I don't think Mr. (Alan) Greenspan is going to be too concerned about these numbers,” he said.
The measure of inflation at the retail level, the Consumer Price Index, is scheduled for release Tuesday morning. Both the overall index and its core component excluding food and energy rose 0.2 percent in October.
Fed officials next meet Dec. 21 to discuss monetary policy, though few analysts expect they will alter rates so close to the seasonal holidays and year’s end. Their next meeting after that is Feb. 2, 2000. The Fed’s benchmark rate for overnight loans between banks currently is 5.5 percent.
Betting on rate rise
It’s that Feb. 2 meeting at which investors are betting that rates will rise again -- even with the benign inflation numbers. The yield on the Fed funds futures contract expiring in February currently rests at 5.67 percent, above the current 5.5 percent Fed funds rate -- suggesting investors are putting about 70 percent odds on another rate increase.
One thing about which almost all economists agreed was, without rising oil prices, wholesale inflation would have been even more subdued last month. Crude oil surged to its highest point since the 1991 Gulf War on Nov. 22, with the price of crude oil for January delivery reaching $27.10 a barrel on the New York Mercantile Exchange. It recently traded at $25.68 a barrel.
"An even greater long-term risk to the markets than additional Fed tightening would be an outbreak of inflation, so the fact that prices remain under wraps is a clear positive,” said Sherry Cooper, chief economist with brokerage Nesbitt Burns Inc.
Producer energy prices rose 1.4 percent in November, reflecting higher prices for heating oil, natural gas and electric power. Food prices, meantime, gained 0.1 percent following a 0.7-percent decline the month before. Passenger car prices rose 0.2 percent; truck prices slid 1.1 percent. Prices for prescription drugs fell 0.2 percent, and computer prices slipped 1 percent.
A mixed bag
Prices for crude goods such as lumber and copper used at the earliest stages of production rose 4 percent last month. The gains were driven by higher prices for crude oil and natural gas after October’s 1.6 percent decline.
Prices for intermediate goods used in the manufacturing process -- things such as cardboard boxes, paint, ball bearings and other equipment -- rose 0.3 percent in November, matching October's gain.
For finished energy goods such as heating oil, prices rose 1.4 percent after dropping 1 percent in October, while the price of finished consumer foods rose 0.1 percent after slipping 0.7 percent a month before.
Year to date, the core index has risen at a 0.8 percent annual pace compared with an increase of 1.5 percent through November 1998. The overall producer price index has risen at a 2.9 percent annual rate compared with a decline of 0.6 percent for the first 11 months of 1998, the report said.
Separately, the University of Michigan said its preliminary consumer sentiment index for December fell to a reading of 104.2 from a final November reading of 107, suggesting consumer confidence may be waning. The report is released directly to subscribers only. 
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