–March PPI +0.7%; Core +0.1% and Ex-Jewelry 0.0%

By Denny Gulino and Kevin Kastner

WASHINGTON (MNI) – Two temporary phenomena, Florida weather-boosted
tomato and other vegetable prices, and jewelry prices boosted by demand
in China and India, popped the March PPI to a 0.7% gain, while deeper in
the report, price pressure was sustained at the intermediate level.

The Bureau of Labor Statistics Thursday reported the
above-expectations result for the broadest measure in the Producer Price
Index while the core rate was up 0.1%, just as anticipated.

Without the month’s 4.9% increase in jewelry prices, itself the
reflection of higher world precious metals prices, the core rate would
have been zero, senior BLS analyst Scott Sager told Market News
International in a pre-publication interview.

“From a weight standpoint, jewelry is about half a percent” of the
core index, Sager said, “so something that goes up 5% will have an
influence,” particularly when other components aren’t moving.

“Precious metals demand is up from China and India,” he said.

Otherwise, he said, prices for tomatoes and other vegetables pushed
consumer food prices up 2.4%, accounting for more than 70% of the PPI’s
outsized 0.7% increase in March, well above the 0.4% expected.

“It was still tomatoes,” Sager said, echoing the main reason
food prices rose in February by 0.4%. “It was pretty much most
vegetables grown in Florida, because of the abnormally cold weather
they had in January and February wiped out those winter crops so
that supplies that normally should be there, aren’t,” sending higher the
price for domestically grown foods the PPI captures. “The next set of
crops are those typically grown out West, probably in another month or
two,” he said.

At the intermediate level, prices rose 0.6% in March, where
there has not been a minus sign since July. Core intermediate prices
rose 0.7% for the month. “It’s again the same culprits, chemicals and
steel, basically due to a combination of higher demand as the economy
continues to recover and higher crude oil prices passing through,
particularly to chemicals this month,” he said.

Intermediate core prices have been up nine of the last 10 months
and December’s decline was only a tenth, he said. “It gives you some
idea, that you’ve kind of turned the corner, with fairly consistent
increases since last year,” he said, yet “we haven’t really seen those
types of consistent increase on the finished goods side.”

The three-tenths rise in January, followed by the single tenths in
February and March add up to an annualized rate of increase for the PPI
core of 1.9%, close to 2009’s rate at the same point of 2.1%.

For the overall PPI, though, the annualized rate through March this
year is a 6.2% increase. Last year at this point the rate was only up
half a percent. But in 2008 it was up 10.4%, “so you’re kind of in
between the two,” he said.

At the start of the supply pipeline, raw materials prices rose 3.2%
in March after falling 3.5% in February. Core crude materials prices
rose 6.0% in March after slipping 0.6% in February. “Nothing unusual”
there, Sager said, for the most volatile of the stage-of-production
indexes.

Expectations in a Market News International survey centered on a
gain in the finished goods index of 0.4% and a PPI core rate up 0.1% in
March.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: MT$$$$,MAUDS$,M$USSS,MX$$$$]