Producer Price Index Disinflation Moderates

By Brad Zigler

The Producer Price Index [PPI] fell 2.2% in November, according to the U.S. Bureau of Labor Statistics. Analysts had forecast a 2% decrease in wholesale-level finished goods prices.

The decline is more moderate than the 2.8% disinflation in wholesale prices clocked in October.

Excluding volatile food and energy prices, the so-called "core" PPI dipped 0.1% last month, compared with a 0.4% decline in October.

On an annualized basis, wholesale inflation measured by PPI declined from a 5.2% reading in October to 0.4% in November.

Prices received by manufacturers of intermediate goods dipped 4.3% last month after declining 3.9% in October. The crude goods index slid 12.5% following an 18.6% tumble in October.

Hard Assets Investor's [HAI] own metric of wholesale food inflation - the Breakfast Index, a trend indicator of the prices in eight breakfast food futures - also moderated in November, falling at an annualized rate of 43.3%. In October, the Breakfast Index plummeted 50.8%. The Index represents food prices at the producer level - typically more volatile than finished goods prices - and can be used as a predictor of inflation or disinflation to come.

For the three-month period ending in November, orange juice lost more than a third of its value, while pork belly (frozen bacon) prices rose more than 2%.

November Breakfast Index: -43.3%

Commodity	Contract Month	29-Aug-08 Price	28-Nov-08 Price	3-Month Change	Annualized Change
Orange Juice	January ‘09	115.85 ¢/lb	74.35 ¢/lb	-35.8%	-82.8%
Wheat	March ‘09	$8.2525/bu	$5.6125/bu	-32.0%	-78.3%
Coffee	December ‘08	145.75 ¢/lb	114.10 ¢/lb	-21.7%	-61.2%
Sugar #11	March ‘09	14.56 ¢/lb	11.90 ¢/lb	-18.3%	-55.1%
Cocoa	December ‘08	$2,884/tonne	$2,372/tonne	-17.8%	-54.0%
Milk, Class III	December ‘08	$16.66/cwt	$15.36/cwt	-7.8%	-24.5%
Butter, AA	December ‘08	149.00 ¢/lb	149.00 ¢/lb	0.0%	0.0%
Pork Bellies (Bacon)	February ‘09	90.200 ¢/lb	92.325 ¢/lb	2.4%	9.7%
Average				-16.4%	-43.3%
bu = bushel; tonne = metric ton (2,200 lbs); cwt = hundredweight (100 lbs)

Short-term inflation is still being wrung out of food prices. As measured by the Bureau of Labor Statistics, farm prices fell 2.2% in November, while finished food prices declined 2.9%, leaving very little daylight between crude and finished food costs.

Producer Price Indexes For Food

On a broader basis, HAI's Real-time Inflation Indicator has formed a base and turned higher after months of decline. Over the past week, monetary inflation has ticked up a half percentage point, a possible herald of incipient reflation.

Real-Time Monetary Inflation (Annual Rate)