February 2013 Consumer and Producer Price Indices (incl. Forest Products)

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The seasonally adjusted Consumer Price Index (CPI) increased 0.7 percent in February -- the biggest month-to-month increase in more than a year. Over the last 12 months, the all items index increased 2.0 percent before seasonal adjustment -- the largest annual change in three years.

The gasoline index rose 9.1 percent in February to account for almost three-fourths of the seasonally adjusted all-items increase. The indexes for electricity, natural gas, and fuel oil also increased, leading to a 5.4 percent rise in the energy index. The food index increased slightly in February, rising 0.1 percent. A sharp increase in the fruits and vegetables index was the major cause of the 0.1 percent increase in the food at home index, with other major grocery store food group indexes mixed.

The index for all items less food and energy (i.e., the “core” index) increased 0.2 percent in February. Analysts polled by MarketWatch had expected the overall CPI to increase 0.6 percent and for the core reading to increase 0.2 percent. The indexes for shelter, used cars and trucks, recreation, and medical care all rose in February. These increases more than offset declines in the indexes for new vehicles, apparel, airline fares, and tobacco.

The seasonally adjusted Producer Price Index for finished goods (PPI) increased 0.7 percent in February. Prices for finished goods moved up 0.2 percent in January and declined 0.3 percent in December. At the earlier stages of processing, the index for intermediate goods advanced 1.3 percent in February, and crude goods prices decreased 0.3 percent. On an unadjusted basis, the finished goods index moved up 1.7 percent for the 12 months ended February 2013, the largest 12-month increase since a 2.3-percent rise in October 2012.

Karl Denninger highlighted a potential red flag in the PPI report: namely, that “energy was up big.  While energy is quite volatile this change is unwelcome.  The bigger issue is that the trend in intermediate goods has shifted from stability to increases, and ex-food-and-energy it was up 0.7 percent on the month. Core intermediate price advances are extremely unwelcome as they tend to translate right into profit margins -- in the wrong direction.” 

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Forest industry-related price indices are either at or near their highest levels since at least 2005. In the case of Softwood Lumber, the rate of month-to-month change may have slowed, but it was quite substantial nonetheless. 

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The foregoing comments represent the general economic views and analysis of Delphi Advisors, and are provided solely for the purpose of information, instruction and discourse. They do not constitute a solicitation or recommendation regarding any investment.