Tag: producer prices

Monday Economic Report – October 20, 2014

Here is the summary for this week’s Monday Economic Report:

Global financial markets were highly volatile last week, with investors concerned about slower growth in Europe and an Ebola outbreak in the United States, among other factors. Indeed, industrial production in the Eurozone fell 1.8 percent in August, and activity was down largely across-the-board, most notably in Germany (down 4.3 percent), the Eurozone’s largest economy. Sluggish income and labor market growth in Europe has also pushed inflationary pressures lower, with year-over-year pricing changes of just 0.3 percent in September. Despite such worries, equity markets began to rebound on Friday, with the Dow Jones Industrial Average (DJIA) closing at 16380.41. Nonetheless, the DJIA remains 5.2 percent below its all-time high of 17279.74 on September 19.

Still, the U.S. economy has shown signs of resilience. Despite a softer August, manufacturing production increased 0.5 percent in September. Over the past 12 months, output in the sector has risen 3.7 percent. While this was slower than its July year-over-year pace, it reflects a nice improvement from the more sluggish 1.5 percent rate in January.

Moreover, surveys from the Manufacturers Alliance for Productivity and Innovation (MAPI) and the New York and Philadelphia Federal Reserve Banks observed expanding activity levels in their latest reports. Each measure eased somewhat in October, but they were expansionary nonetheless. The weakest of these reports was the Empire State Manufacturing Survey, which observed a slight contraction in new orders. Yet, even there, respondents remained mostly optimistic about demand and output over the next six months. Along those lines, MAPI has a generally upbeat outlook, predicting that manufacturing production will increase by 3.4 percent in 2014 and 4.0 percent in 2015.

Housing starts exceeded 1 million again, increasing from an annualized 957,000 units in August to 1,017,000 in September. This continues a slow-but-steady trend upward, with an average of 978,111 so far in 2014 relative to an average of 930,000 for all of 2013. Still, there was relatively weak housing activity throughout much of the second half of last year and the first half of this year, and the latest data suggest that the sector has begun to stabilize somewhat. I continue to predict housing starts solidly in the 1.1 million unit range by the beginning of 2015. Homebuilder confidence has also reflected a positive outlook despite slipping a bit in October. Lower mortgage rates might spur more residential construction activity. According to Freddie Mac, average 30-year fixed mortgage rates fell to 3.97 percent this past week, their lowest level since June 2013.

Meanwhile, there was mixed news on the consumer front. On the positive side, consumer confidence reached a pre-recessionary high, according to the University of Michigan and Thomson Reuters. This is a sign that improvements in the economy and lower gasoline prices have helped to lift Americans’ spirits. Yet, there are also lingering worries about income and labor market growth, and consumers remain somewhat cautious overall. Retail spending declined 0.3 percent in September, suggesting softness as we begin autumn. At the same time, year-over-year growth in retail sales was up 4.3 percent, a fairly decent rate, and the holiday season retail outlook looks pretty strong. We hope we will see better consumer spending data in the coming months.

This week, we will get additional insights regarding the health of the global economy. Markit will release Flash Purchasing Managers’ Index (PMI) data for China, Japan, the Eurozone and the United States. The European data are expected to show continued weakness, but we will be watching for signs of progress in the Chinese manufacturing sector, which has decelerated in recent months. The Kansas City Federal Reserve Bank will also unveil its latest manufacturing survey, and it is expected to show continued expansion in its district. Beyond these surveys, we will learn about growth in consumer prices, and if they are similar to the producer price index data released last week, they will reflect easing in both food and energy costs. Other highlights this week include reports on existing and new home sales, leading indicators and state employment.

Chad Moutray is the chief economist, National Association of Manufacturers. 

DJIA - oct2014

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Lower Energy and Food Costs Push Producer Prices Down in September

The Bureau of Labor Statistics said that producer prices for final demand goods and services were down 0.1 percent in September. It was the third straight month with inflationary pressures easing, a positive development that helps both businesses and consumers. On a year-over-year basis, final demand producer prices have risen 1.6 percent over the past 12 months, decelerating from 2.1 percent in May. Producer prices for final demand goods were off 0.2 percent, extending the 0.3 percent decline observed in August, with both food and energy costs lower.

Energy prices have fallen in four of the past five months, declining by 0.7 percent in September. One of the key drivers of this decrease was the fall in gasoline prices, down 2.6 percent for the month. Indeed, the price of West Texas intermediate crude was $97.86 per barrel on August 29, but by September 30, that figure had fallen to $91.17 a barrel. (It has declined further since then, closing at $81.84 per barrel yesterday. This could indicate further deceleration in energy and producer prices in October.)

Meanwhile, food prices also decreased 0.7 percent in September. After rising 5.4 percent from December to April, producer prices for final demand food products have eased by 1.5 percent. As such, the cost of food remained 3.8 percent higher in September than at the start of the year. This has largely stemmed from higher prices for meats, eggs, dairy and produce. The largest price declines in August were seen in beef and veal, chicken, cooking oils, eggs, grains, milled rice, pork, oilseeds and turkey products.

Beyond food and energy, core prices for final demand goods were up 0.2 percent. There were higher monthly costs for commercial products, floor coverings, industrial chemicals, pumps and compressors and women’s apparel. At the same time, producer prices for footwear, household appliances and furniture, jewelry, lawn and garden equipment, passenger cars, toys and games and truck trailers were lower.

Core inflation for final demand goods and services was 1.6 percent in September, down from 1.8 percent in August and 2.1 percent in May. As such, the reduction in inflation seen in the past few months should take some pressure off of the Federal Reserve Board as it prepares to normalize its monetary policies.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – September 22, 2014

Here is the summary of this week’s Monday Economic Report: 

Manufacturing production declined unexpectedly in August, led lower by reduced motor vehicle output. This drop was likely the result of automakers’ switching over to a new model year and summer vacations. Indeed, auto production has risen 8.1 percent over the past 12 months, continuing to make it one of the bright spots in the economy. Excluding autos, manufacturing output rose 0.1 percent, suggesting slightly better news for the broader sector. Still, the larger story is the accelerated pace of output seen since the winter months, with the year-over-year pace up from 1.6 percent in January to 4.0 percent in August. Durable and nondurable goods production has increased 5.6 percent and 2.2 percent year-over-year, respectively. Hopefully, the August figures reflect a brief pause before picking up again in September.

Regional sentiment surveys tend to suggest that this might be the case. The Empire State Manufacturing Survey from the New York Federal Reserve Bank said that business conditions rose at their fastest pace in nearly five years, with 46 percent of those taking the survey saying that the environment had improved in the month. At the same time, the Philadelphia Federal Reserve Bank’s Manufacturing Business Outlook Survey found healthy rates of growth in September, even as the pace pulled back slightly from very strong gains in August. Each of these two surveys reported higher levels for new orders and shipments, but they were mixed regarding hiring growth. Nonetheless, manufacturers in both districts were overwhelming upbeat about the next six months, with more than half of respondents predicting sales increases. Moreover, the Philly Fed found that a majority of those taking its survey expect production to increase in the third and fourth quarters.

Meanwhile, housing starts fell from an annualized 1,117,000 units in July to 956,000 in August. To be fair, the July figure—the second fastest pace since November 2007—was likely an outlier, and the pendulum—not unexpectedly—swung back somewhat. Yet, the slowdown in August was still disappointing. On the bright side, while single-family and multi-family unit starts and permits were both down, the highly volatile multi-family segment comprised the bulk of the decline. Looking at a longer time horizon, each has continued a slow, but steady upward trajectory. I continue to expect housing starts to be solidly at 1.1 million by year’s end. Indeed, home-builder confidence was equally optimistic about better figures moving forward, with the Housing Market Index at its highest level since November 2005.

The Federal Reserve Board provided the other major headline from last week. The Federal Open Market Committee (FOMC) began laying out its principles for winding down the extraordinary stimulus that it has pursued since the financial crisis at the end of 2008. The Fed will end its purchases of long-term and mortgage-backed securities after its October FOMC meeting, and the expectation is that short-term interest rates will begin to “normalize” at some point in 2015. The federal funds rate, however, will remain near zero for a “considerable time after the asset purchase program ends,” a statement that some suggest means that normalization will not occur until mid-2015 at the earliest. Fortunately, news that consumer and producer pricing pressures eased in August was likely welcomed at the FOMC because it takes some pressure off of the Fed to act sooner, at least for now. (Inflation has accelerated from where it was earlier in the year, but remains below the Fed’s stated 2.0 percent goal.)

In its FOMC statement, the Federal Reserve said that “economic activity is expanding at a moderate pace.” Nonetheless, it continues to worry about slack in the economy, particularly in labor markets. The Fed predicts growth this year of between 2.0 and 2.2 percent, with 2.6 to 3.0 percent real GDP growth next year. The unemployment rate is expected to fall to 5.9 or 6.0 percent by the end of 2014 and 5.4 to 5.6 percent by the end of 2015. In terms of inflation, the Fed forecasts prices growing by less than 2.0 percent over the next few years. If core inflation consistently exceeds 2.0 percent, it will give greater credence to hawks on the FOMC to increase rates sooner rather than later.

This week, we will get a sense of how manufacturing activity is faring globally with preliminary purchasing managers’ index (PMI) data from Markit for China, the Eurozone and the United States. The Chinese economy has begun to stabilize after slowing earlier in the year, but is still not growing by much. European growth has effectively come to a halt. In the United States, however, recent PMI data have reflected healthy gains in both demand and output over the summer months. We will also get new surveys from the Kansas City and Richmond Federal Reserve banks. Beyond those surveys, we will get the second revision to real GDP growth for the second quarter on Friday, with a consensus estimate of 4.3 percent growth, or just slightly higher than the previous 4.2 percent figure.

Other highlights this week include the latest data on consumer confidence, durable goods orders and shipments, and existing and new home sales.

Chad Moutray is the chief economist, National Association of Manufacturers. 

housing starts and permits - sept2014

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Producer Prices Were Unchanged in August

The Bureau of Labor Statistics said that producer prices for final demand goods and services were unchanged in August, continuing the easing in inflationary pressures seen in July. More importantly, producer prices for final demand goods were down 0.3 percent in August, with costs for both food and energy lower for the month. Energy prices fell for the second straight month(down 1.5 percent), consistent with the drop in the price of West Texas intermediate (WTI) crude oil from $106.07 per barrel at the end of July to $98.23 at the end of August. (WTI closed at $92.92 per barrel yesterday, indicating that there will be a further deceleration in this measure in September.)

Meanwhile, food prices decreased 0.5 percent in August. After rising 5.4 percent from December to April, producer prices for final demand food products have eased by 0.8 percent. As such, the cost of food remained 4.5 percent higher in August than at the start of the year. This has largely stemmed from higher prices for meats, eggs, dairy and produce. The largest price declines in August were seen in eggs, fish, oilseeds, pasta products and pork.

Beyond food and energy, core prices for final demand goods were unchanged. Higher monthly costs for footwear, heavy motor trucks, mobile homes, paper industries machinery, pet food and toys were offset by lower prices in computers, household appliances, metal forming machinery, office equipment, passenger cars and women’s apparel.

On an annual basis, producer prices for final demand goods and services have increased 1.8 percent over the past 12 months. This represents a decline from the 2.0 percent observed in May but an acceleration from December’s 1.1 percent pace. Likewise, core inflation – which excludes food and energy costs – for final demand goods and services has increased 1.8 percent year-over-year in August, up from 1.6 percent in July.

Overall, this report suggests that pricing pressures have accelerated from earlier in the year, but inflationary growth has eased slightly over the past couple months. Core inflation remains below the Federal Reserve’s stated threshold of 2 percent. This indicates the inflation remains in-check, at least for now, and the recent deceleration should ease the pressure on the Federal Open Market Committee (FOMC) to expedite its plans to normalize rates. With the FOMC meeting concluding tomorrow, we will get a better sense of its intentions with its latest statement. Of course, the final decision to raise short-term rates will likely hinge on economic data in the months to come.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – August 18, 2014

Here is the summary for this week’s Monday Economic Report:

While geopolitical events continue to provide significant downside risks to the economy, recent data suggest that manufacturers in the United States are faring better this summer. Manufacturing production increased 1.0 percent in July, helping to lift the year-over-year pace of manufacturing output to 4.9 percent, its fastest annual pace since June 2012. Last month’s gain stemmed largely from increased motor vehicle production, with all but three of the major manufacturing sectors notching higher output levels for the month. At the same time, the utilization rate for manufacturers increased to 77.8 percent, nearly reaching pre-recessionary capacity levels.

Similarly, the Empire State Manufacturing Survey reflected strong growth in August, albeit less so than the robust levels observed in July. More importantly, respondents to the New York Fed’s survey were significantly more upbeat, with roughly 60 percent anticipating higher sales and output over the next six months. This study also reported that approximately 30 percent of manufacturers in its district planned to hire more workers and invest in additional capital expenditures in the coming months. This is welcome news, and it was largely consistent with the recent pickup in the labor market. Manufacturing job openings increased in June to their highest level in two years, with net hiring also accelerating. Of course, we already knew that to some extent. The most recent employment data found that manufacturers hired an additional 22,000 workers on average from May to July.

Meanwhile, the European economy has shown signs of backtracking, with real GDP in the Eurozone remaining unchanged in the second quarter. Germany’s economy contracted by 0.2 percent, helping to push the continent’s growth figure lower, but Italy (also down 0.2 percent) and France (flat for the second straight quarter) were also weak. In addition, industrial production has decreased in three of the past four months, with output unchanged year-over-year. We will get our first look at August purchasing managers’ index (PMI) data this week. The Markit Eurozone Manufacturing PMI report in July provided mixed news, with activity expanding for 13 straight months but growth continuing to ease over the course of this year. The latest data suggest that Europe’s economic challenges are still not behind them.

To some extent, that is true in the United States as well. We have seen improvements in a number of economic indicators, and yet, there are also persistent worries about future growth. Some of this could stem from global anxieties, but it could also be a function of disappointment with the lack of growth in the first half of the year. Preliminary consumer sentiment data from the University of Michigan and Thomson Reuters appears to pick up on this nuance, with Americans less confident once again in their forward-looking expectations. Indeed, retail sales data also reflect cautiousness on the part of the consumer, with spending unchanged in June.

This week, we will get additional insights about the health of the manufacturing sector worldwide. In addition to new PMI data for Europe, Markit will also release flash reports for China, Japan and the United States. While China’s economy had begun to stabilize in July, last week we learned that Japan’s real GDP contracted by 1.7 percent in the second quarter, or 6.8 percent year-over-year. Closer to home, the Federal Reserve will release the minutes of its July 29–30 Federal Open Market Committee meeting. Analysts will be looking for clues about when the Fed plans to start normalizing short-term rates. The Fed received good news last week with an easing in producer prices in July from recent highs, and this should help to alleviate some of the immediate pressure from inflation hawks, at least for now. Other highlights this week include the latest data on consumer prices, housing starts and permits, leading indicators and Philadelphia Fed manufacturing sentiment.

Chad Moutray is the chief economist, National Association of Manufacturers. 

manufacturing production - aug2014

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Higher Energy Costs Pushed Producer Prices Up in June

The Bureau of Labor Statistics said that producer prices for final demand goods and services increased 0.4 percent in June, rebounding from the 0.2 percent decline in May. June’s higher figure stemmed largely from a sharp jump in the cost of finished energy goods, which increased 2.1 percent in the month. Middle East tensions in Iraq were largely to blame for this increase. Indeed, the cost of West Texas intermediate crude oil jumped from $99.69 per barrel on May 1 to $103.07 on June 2 to $106.07 on June 30. (The price of oil has fallen since then, closing at $100.75 a barrel yesterday.)

One of the other major drivers of price increases this year has been food; yet, the cost of finished food goods have fallen in the past two months by 0.2 percent each time. Still, food costs have risen 4.6 percent year-to-date on higher prices for meat, vegetables, dairy, and egg products. The lower costs in June reflect some easing in the price growth for those products.

Beyond food and energy, core producer prices for final demand goods increased 0.1 percent in June. The largest increases were seen in industrial chemicals, cigarettes, commercial and industrial products, construction machinery and equipment, sporting and athletic products and truck trailers. These were offset by declines in prices for jewelry, mining machinery, motor vehicle parts, railroad equipment, toys and games and travel trailers and campers, among others.

On an annual basis, producer prices for final demand goods and services rose 1.9 percent over the past 12 months. This was slightly lower than the 2.0 percent pace observed in May, but it remains higher than the 1.1 percent rate experienced in December. Meanwhile, core inflation – which excludes food and energy costs – increased 1.7 percent between June 2013 and June 2014. This suggests that producer prices have decelerated somewhat from 2.0 percent growth rate seen the month before.

In general, we have seen a pickup in costs this year, and the Fed will keep an eye on pricing pressures moving forward. Nonetheless, the decline in June has provided a welcome respite from increases seen earlier in the year.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Producer Prices Edge Lower in May, but Core Inflation Rose to 2 Percent

The Bureau of Labor Statistics said that producer prices for final demand goods and services decreased 0.2 percent in May, falling after a decent jump of 0.6 percent in April. May’s decline for goods producers came from lower food and energy costs, both of which decreased 0.2 percent for the month. Still, food prices remain elevated, with the lower May figure following sharp increases in both March and April. In fact, final demand food costs have risen 4.9 percent since December largely from higher prices for meat, dairy and egg products.

Meanwhile, final demand energy costs have been somewhat more volatile this year, up in January and February but lower in March, April and May. Year-to-date, energy costs for final goods have actually fallen 0.5 percent. With that said, intermediate demand for energy goods, which are used in the production process, increased 0.3 percent in May following sharp declines in both March and April. This was primarily due to higher petroleum costs, with West Texas intermediate crude costs up from $99.69 per barrel on April 1 to $103.40 a barrel on May 30. As a result, we will likely see higher final demand energy costs for June.

Looking at annual inflation rates, producer prices for final goods increased 2.0 percent between May 2013 and May 2014. This was slightly below the 2.1 percent pace observed in April, and it was only the second time since March 2012 that producer prices have equaled or exceeded 2 percent. Core inflation – which excludes energy and food costs – were unchanged for final demand goods in May; yet, the annual pace for core producer prices moved higher, up from 1.8 percent to 2.0 percent. It was the first time since December 2012 that core inflation was 2 percent or greater. The Federal Reserve strives to keep core pricing pressures at 2 percent or less.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Monday Economic Report – May 19, 2014

Here is the summary for this week’s Monday Economic Report: 

There are numerous signs that global economic growth is lower than expected in 2014, with some disappointing data coming in last week. For instance, industrial production numbers were weaker in a number of countries, including slower industrial growth in China in April relative to just a few months ago and falling output in March in the Eurozone. Europe also learned that real GDP rose at the very slow pace of 0.2 percent in the first quarter, prompting new worries about sluggish income and labor market growth on the continent. Meanwhile, in the United States, the Federal Reserve reported that manufacturing production fell 0.4 percent in April. This followed relatively strong rebounds in February and March from winter-related softness in December and January. Still, output continues to reflect modest gains year-over-year, particularly for durable goods.

Despite April’s decline in industrial production, other data suggest that manufacturing activity in the United States appears to be recovering from earlier weaknesses. Manufacturing surveys from the New York and Philadelphia Federal Reserve Banks both show relatively strong expansions in their regions, even as the Philly Fed report eased a bit in May from April. New orders, shipments and employment reflected continuing expansion from the previous survey. More importantly, manufacturers in each district remained mostly upbeat about the next six months, with more than half of the respondents in both surveys anticipating new orders to increase moving forward. For their part, small business owners were also more optimistic, with the National Federation of Independent Business’s (NFIB) key index rising to its highest level since October 2007.

At first glance, the housing data released last week were also quite positive. Housing starts exceeded 1 million again for the first time this year, up from an annualized 947,000 units in March to 1,072,000 in April. New residential permitting was also higher. Yet, the bulk of April’s increases in both measures were primarily due to the more volatile multifamily housing segment. Single-family starts and permits were only marginally higher, but remain below the recent peaks last November. As such, there is perhaps more softness in the market than the headline figure indicated. (We will get existing and new home sales figures this week.) Indeed, homebuilder confidence fell to its lowest point in 12 months, with consumer anxieties cited as a concern. On the positive side, builders were somewhat more hopeful about future activity.

Consumer data were mixed. Retail sales increased 0.1 percent in April, extending the strong gains from February and March. Auto sales comprised much of April’s gains, with retail spending outside of motor vehicles unchanged from March. As such, consumers appeared to be somewhat cautious in April. This showed up in the latest consumer confidence data as well. The University of Michigan and Thomson Reuters reported that consumer sentiment edged slightly lower in May in its preliminary data, with Americans more concerned about current economic conditions. In terms of prices, consumer inflation has started to pick up slightly, led by higher food costs, but core pricing pressures remain below 2 percent at the annual rate, at least for now. A similar pattern was observed for producer prices.

This week, we will get more news on the health of the manufacturing sector worldwide, with flash Purchasing Managers’ Index (PMI) data from Markit for the United States, Europe, China and Japan. The Kansas City Federal Reserve will also release its latest sentiment survey. Finally, the Federal Open Market Committee (FOMC) minutes from its April 29–30 meeting will be released, providing some insights about current Federal Reserve debates. However, that meeting hardly produced any surprises, with the FOMC continuing to taper its asset purchases and the Federal Reserve’s forward guidance still pointing to short-term rate increases sometime next year.

Chad Moutray is the chief economist, National Association of Manufacturers. 

yoy industrial production growth - may2014

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Producer Prices Move Higher, Particularly for Food, But Core Inflation Remains In-Check for Now

The Bureau of Labor Statistics said that producer prices for final demand goods and services increased 0.6 percent in April, building on the 0.5 percent gain of March. April’s increase was the fastest pace of monthly input price growth since February 2013. The bulk of the jump in producer prices over the past two months has stemmed from higher food costs, which rose 1.1 percent  and 2.7 percent, respectively, in March and April. The largest increases were in meat and dairy prices. Indeed, the cost of final demand food goods have increased a whopping 5.1 percent year-to-date.

Meanwhile, energy costs edged slightly higher in April, up 0.1 percent, following a 1.2 percent decline in March. Over the course of the first four months of 2014, final demand energy costs have fallen by a very modest 0.2 percent, with year-over-year growth of 3.8 percent. For the most part, energy costs have mostly stayed in-check so far this year overall.

Excluding energy and food, core producer prices for final demand goods rose 0.3 percent.  Some notable price increases in April included costs for light motor trucks and textile machinery and equipment. In contrast, there were decreases in the costs for floor coverings, oil field and gas field machinery, silverware and hollowware, tires, among others.

The bottom line is that core inflation remains relatively minimal despite increased producer prices in March and April, particularly for food items. On a year-over-year basis, core producer prices for final demand goods (which exclude energy and foods items) was 1.5 percent in April, up from 1.2 percent in March. Core input prices have remained below the Federal Reserve’s threshold of 2 percent for 23 straight months. This allows the Federal Open Market Committee to continue its accommodative measures to stimulate the economy.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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Producer Prices Edge Higher, but with Inflationary Pressures Still Minimal

The Bureau of Labor Statistics said that producer prices for final demand goods and services rose 0.2 percent in January. This was the fastest pace in three months, and the gains were larger for goods (0.4 percent) than for services (0.1 percent). On an annualized basis, producer prices for final demand goods and services rose 1.2 percent in January, only marginally higher than the 1.1 percent pace observed in December.

Specific to final demand goods, food costs were up sharply, rising 1.0 percent for the month, ending two straight months of declines. Increased prices for vegetables, meats, seafood, and dairy products pushed food costs up in February. At the same time, energy costs rose 0.3 percent, extending the 1.5 percent increase the month before. Colder weather likely impacted this result, with energy costs lifted by higher prices for electricity, natural gas and liquefied petroleum gas.

Excluding energy and food, core producer prices for final demand goods rose 0.4 percent, its fastest gain in more than one year. The largest increases were seen for agricultural machinery, cosmetics, floor coverings, pharmaceuticals, and sporting and athletic goods.

Core inflation for goods and services at the final demand level remained minimal, up just 1.4 percent from January 2013 to January 2014. The significance of this figure is that remains well below the Federal Reserve’s threshold of 2 percent, allowing the Federal Open Market Committee to continue its accommodative measures to stimulate the economy. In fact, the year-over-year pace has stayed below 2 percent each month since December 2012.

Chad Moutray is the chief economist, National Association of Manufacturers. 

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