Wholesale prices send mixed signals

Anybody looking for clarity about inflation in the wholesale prices report (Producer Price Index) for March on Friday was disappointed and had to settle for mere nuance. Yes, the headline inflation rate was up a whopping 1.0% in a single month, but ex food and energy was an absolutely flat 0.0.

One good way to interpret the producer price index is to look at the core intermediate price index. That is the portion of producer prices that have a good chance of funneling fairly directly into consumer prices. The full intermediate price index rose by a whopping 1.0% in March, but the core intermediate goods price index (ex food and energy) was up a modest 0.2%. Unfortunately, 0.2% annualizes to 2.4%, which is still well above the Fed's preferred inflation range of 1% to 2%.

Another way of looking at core intermediate prices is to average the past six monthly readings to get a more stable read of where inflationary pressure appears to be trending. The past six months of core intermedaite price changes were -0.1%, -0.4%, +0.2%, 0.0%, +0.2%, and +0.2%, for an average of +0.1% which annualizes to +1.2%, which is towards the lower end of the Fed's range. So, by at least one reasonable measure, the Fed is doing a great job. But, as I said, you have to resort to nuance to draw any strong conclusions from this data.

-- Jack Krupansky