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The Labor Department said Thursday the Producer Price Index [PPI] increased 3.2% in November, the highest one-month reading since 1973. Economists were expecting a 1.7% rise. The main catalyst for the jump was energy prices, which increased 14.1% versus the October figure. Wholesale gasoline prices rocketed 34.8%, a new record. Food prices were unchanged. Core PPI, which excludes volatile food and energy prices, climbed 0.4%, doubling economist forecasts of a 0.2% increase. "Inflation isn't in complete remission yet," Chris Rupkey, a senior financial economist at Bank of Tokyo-Mitsubishi UFJ, said. "It looks as if the Fed was right to keep its eye on inflation and say the risks of inflation are still out there." The Fed said in its statement Tuesday it would "continue to monitor inflation developments."

Meanwhile, the Commerce Department announced U.S. retail sales rose 1.2% in November. The figure was easily better than the 0.6% growth economists were forecasting, and gave hope the economy is not as weak as many perceived. "The numbers should help put to rest some of the fears of the economy sliding into recession," said Mark Vitner, a senior economist at Wachovia. Automobile and auto-parts sales sank 1%. Excluding auto and parts dealers, sales increased 1.8%, the most since January 2006. Economists were anticipating a 0.7% rise. October retail sales was also revised higher to 0.4% from 0.2%. Not including gas and auto sector sales, the rest of the retailers managed a solid 1.1% increase in sales.

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Source: Inflation Surges; Retail Sales Beat Expectations