High PPI More Honest Than CPI, FOMC Has To Look Past It

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This morning we saw February Producer Prices come out with a gain of +0.3%, and that is after a +1% gain in January.  The core rate on an ex-food and energy basis rose +0.5%.  We had penciled in estimates from Bloomberg as +0.4% expected on nominal PPI and +0.2% on Core PPI.

If you take everything into consideration, what it really looks like is that the Labor Department was just more realistic on PPI than it was on CPI with that seemingly wrong FLAT release on Friday.

Some may say that this should give the FOMC some pause over an expect 1.0% rate cut on the Fed Funds rate.  The problem is that inflation is taking the backseat to a crippled consumer and a credit strapped nation that can’t refinance out of mortgages that are too high of rates on too high of an appraised house on a higher basis than they should have ever been approved for.  The Fed is going to have to hold its nose, forget about the US Dollar becoming the US Peso, and hit the CUT button big either way.

Jon C. Ogg
March 18, 2008