Overall producer prices, which are a measure of prices before they reach the consumer, rose 4.1 percent from a year ago, the biggest year-over-year increase since June 2006. However, core producer prices were up just 1.6 percent from a year ago, and that moderate gain will likely add some relief to Federal Reserve policy-makers as they balance the risks of inflation against economic growth.
As is often the case, I am more interested in whether the data will give me specific investment ideas. Therefore, I like to look into the industry PPI data for a sense of which industries may be gaining or losing pricing power relative to market perceptions.
For example, the housing slowdown means sawmills are gathering dust. Pricing power is plummeting.
Yet the stock price for industry leader Weyerhaeuser (WY) is fairly strong.
Yes, I know that institutional investors are clamoring for timberlands. So perhaps private equity would make a play for WY. But then again, perhaps they wouldn’t - and with all the buying that’s been going on lately, I wonder who is left to buy.
Think gasoline prices are high? Actually, refinery pricing has been far lower than normal the last year. The bad news (for drivers) is that it seems to be rebounding.
A chart of Valero (VLO) suggests the PPI may have some explanatory power. Note the stock dip late last year when PPI plunged, and the subsequent rally as pricing recovered.