PPI Report is Latest Sign of Rising Inflation Pressures - Barron's (blog)

By Miriam Gottfried

The Producer Price Index report released by the Labor Department today is the latest sign of rising inflation pressures in the U.S. in early 2011, according to research firm RDQ Economics.

The import price report release by the department yesterday also showed inflationary pressures at work, the firm said.

"Moreover, it is not just a food and energy story as core inflation pressures were significant in this report at all levels of production," said Chief Economist John Ryding in a note. "Furthermore, the relationship between food prices paid to farmers and PPI foods points to more food price increases to come, while surging raw materials costs suggests higher core finished goods prices ahead."

The Fed is making a gamble that these increases will not feed into the CPI by more than a modest amount, Ryding added, noting that the Fed wants core inflation about 1% point higher than it ran in 2010.

"The Fed, however, should be careful what it wishes formonetary policy is ultra accommodative and continues to be eased further by QE2," he wrote.

Core consumer goods prices are rising 2.3% year-over-yearat the wholesale level, a significant increase, Ryding wrote, while apparently falling at the consumer level.

"We do not think this gap can persist for long and we look for an acceleration in core CPI," he wrote. " If inflation gets out of the bag, it will not be so easy to contain."