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Inflation still alive and well at the producer level




Producer prices rose 4.3% in the 12 months ending in October. Measured over the past 3 years—to eliminate the extreme volatility of 2008—producer prices are up at a 2.4% annual rate. Excluding food and energy prices, the producer price index is up 1.4% in the past year, and over the past three years, it's up at an annual rate of 2.2%. No sign of deflation here, and if anything I detect a gentle upward bias in the pace of producer inflation since 2003, which not coincidentally was when the Fed first began to adopt an aggressive accommodative policy stance.

You may see reports that highlight the fact that the rise in producer prices in October was much less than expected, but that needs to be taken with a grain of salt. As Brian Wesbury notes, the unexpectedly small gain in October prices (and the unexpectedly large drop in core prices) was likely due to a seasonal adjustment problem, since "this is the fourth time in the past six years that the core PPI has dropped in October ... and (it) may be due to how the government estimates prices of light trucks, which fell 4.3% in October."

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