–April PPI Below-Expectations -0.1%; Core +0.2%
–Euro Uncertainty Spurs Raw Materials Commodities Speculation

By Denny Gulino

WASHINGTON (MNI) – Despite April’s overall energy-induced 0.1%
decline, more notable in the Producer Price Index was the unrelenting
price pressures at the intermediate level, spurred in part by export
demand and commodities speculation caused by euro uncertainty.

The Bureau of Labor Statistics Tuesday reported the PPI’s core rate
was a little higher than expected, up 0.2%, about one-fifth of the
increase caused by the 0.6% bump in car prices.

The improving economy was a large factor behind the sixth
consecutive monthly core rate increase and the steady price pressure at
earlier stages, BLS senior analyst Scott Sager told Market News
International in a pre-publication interview.

“The most interesting item is on the intermediate side,” he said,
“the continuation of the increase we’re seeing in intermediate core
area — which is the heavily weighted part of the intermediate category
— going on for at least a year now.”

Intermediate core prices rose a strong 1.1% in April as another
part of the trend beginning in June, and the increases were widespread,
echoed by the overall intermediate price gain of 0.8%. Plastic resin
costs jumped 11.4% in the one month, steel mill products 5.2%, organic
chemicals 2.4%, non-ferrous metals 8.4% and lumber 4.5%.

Yet so far, manufacturers have resisted passing on the rising
input prices to the finished goods level. With consumers reluctant to
pay higher prices for discretionary items they can live without if
necessary, including cars and appliances, “It doesn’t appear to be
passing through,” Sager said, “to this point.”

Yet, as auto prices show, manufacturers there have been able “to
dial back a little” on incentives. “It varies product by product,” he
said. “Some pass through much quicker than others.” For producers,
“any time manufacturers are looking at higher material input costs
there’s obviously going to be pressure to pass that on or reduce their
profits.”

“Theoretically, there are things finished goods manufacturing can
do to reduce costs, either taking the hit themselves to keep market
share,” he added. “They can try to become more efficient, reducing the
labor force.”

For now, 11 months of intermediate core price hikes haven’t shown
up in the end-of-pipeline product prices which year to date are up at an
annualized 4.6%. Last year at the point they were up 2.1%, but in 2008
were running ahead by 9.0%.

April’s decline in the finished goods index, after the March 0.7%
increase, was caused by lower energy prices, with the energy index down
0.8%. Gasoline dropped 2.7%, residential natural gas was off 1.3% and
liquefied petroleum gas dropped 5.8%.

Lower food prices helped too, slipping 0.2%, as fruit and vegetable
supply from parts of the country not hit by the early-year Florida
freeze begins to take up the slack.

At the beginning of the supply pipeline, raw materials prices
dropped 1.2% but core crude materials prices went the other way, up a
strong 4.0%. There, Sager said, prices have been influenced by “economic
uncertainty, particularly in Europe, where you’ve seen a kind of
increase in speculative buying.” The higher export demand has affected
metals ore and scrap, he said.

Expectations in a Market News Internationial survey centered on a
0.1% rise in both the overall April PPI and its core rate.

** Market News International Washington Bureau: 202-371-2121 **

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