Implications: Declining oil prices may temporarily tame producer price inflation in May, but, through April, inflation was roaring. Prices are up 6.8% in the past year and accelerating. In the past six months producer prices are up at an 11.5% annual rate; in the past three months they're up at a 13.1% rate. Most of the gain in April was due to energy. But, while the Federal Reserve can still claim core inflation is low for consumers, core producer prices are accelerating, up 0.3% in April and up at a 3.2% annual rate in the past three months. Further up the production pipeline, core intermediate prices increased 1.1% in April and are up at a 13.1% annual pace in the past three months; core crude prices bounced back in April increasing 2.6%, and are up at a 10.5% rate in the past three months. Based on these inflation signals and the current state of the economy, the Fed's monetary policy is way too loose, even if headline inflation takes a breather in May due to the drop in oil prices. In other news this morning, new claims for unemployment insurance fell 44,000 last week to 434,000. This is very close to the four-week moving average of 437,000. Continuing claims for regular state benefits increased 5,000 to 3.76 million. Claims have been roiled of late by early auto shutdowns related to the disasters in Japan as well as a brutal tornado season in much of the Midwest and South. We expect claims to generally decline over the next several weeks.
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Posted on Thursday, May 12, 2011 @ 10:37 AM
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