September 2010 Consumer and Producer Price Indices

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) increased 0.1 percent in September on a seasonally adjusted basis. Over the last 12 months, the all items index increased 1.1 percent before seasonal adjustment.

Increases in food indexes and another rise in the gasoline index contributed to the all items seasonally adjusted increase. Four of the six major grocery store food group indexes increased in September as the food index posted its largest increase since October 2008. The gasoline index rose again in September, leading to a third consecutive increase in the energy index despite a decline in the index for household energy.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) increased 0.4 percent in September; intermediate goods moved up 0.5 percent, and the crude goods index fell 0.5 percent.
 

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Details at different stages of processing include:

Finished goods -- The broad-based increase in the index for finished goods can be traced primarily to higher prices for finished consumer foods, which rose 1.2 percent. The indexes for both finished energy goods and for finished goods less foods and energy also contributed to this increase, moving up 0.5 percent and 0.1 percent, respectively.

Intermediate goods -- The September rise for the intermediate goods index was broad-based, with prices for foods and feeds climbing 2.1 percent. The index for intermediate goods less foods and energy moved up 0.2 percent and prices for energy goods advanced 0.7 percent. On a 12-month basis, the intermediate goods index increased 5.6 percent for September, its tenth consecutive year-over-year rise.

Crude goods -- The monthly decrease was due to the index for crude energy materials, which fell 8.8 percent. By contrast, prices for crude foodstuffs and feedstuffs advanced 5.0 percent, and the index for crude nonfood materials less energy increased 5.5 percent.
 

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With the exception of Pulp, Paper & Allied Products, the main indices related to forest products manufacturing have retreated from their highs earlier this year -- on both monthly and annual percentage change bases. Pulpwood appears poised for another increase.
 

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“We’re kind of in a zone where neither inflation nor deflation is an overly significant concern,” said Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, in reaction to the PPI report. “Core prices remain in check as demand remains subdued.”

Restricting analysis to “core” items might one to agree with Mr. Price, but consumers don’t live “at the core.”

“As is often the case, there is a big difference between what the government statistics are reporting and what’s going on in the real world,” wrote Casey Research’s Jake Weber. “According to the most recent inflation reading published by the Bureau of Labor Statistics (BLS), consumer prices grew at an annual rate of just 1.1% in August.

“The government has an incentive to distort CPI numbers, for reasons such as keeping the cost-of-living adjustment for Social Security payments low. While there’s no question that you may be able to get a good deal on a new car or a flat-screen TV today, how often are you really buying these things? When you look at the real costs of everyday life, prices have risen sharply over the last year. For simplicity’s sake, consider the cash market prices on some basic commodities.
 

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“On average, our basic food costs have increased by an incredible 48% over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23% on average (heating oil, gasoline, natural gas). A little protein at dinner is now 39% higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36% since last October.

“You probably aren’t buying new linens or shopping for copper piping at the hardware store every day, but I included these items to show the inflationary pressures on some other basic materials that will likely affect consumer prices down the road.

“The jump in gold and silver prices illustrates that it’s not just supply and demand issues driving the precious metals higher -- the decline in purchasing power of the dollar is also showing up in the price of physical goods,” Weber concluded. “It is because stashing wheat and cotton in the garage is an impractical way to protect purchasing power that investors are increasingly looking to protect themselves with the monetary metals -- a trend that is now very much in motion.”