US DATA PREVIEW: NOV PPI 'FRIENDLY' WITH ONLY SLIGHT GAINS
By Kevin Kastner
WASHINGTON (MktNews) - The U.S. Producer Price Index is expected to stabilize in November after fluctuating sharply in recent months, according to analysts surveyed by Market News International.
The fluctuations should calm in November, analysts said, as rebounds in food and energy are offset by softer readings for motor vehicles, tobacco, and prescription drugs.
In October, core PPI rose 0.3%, following a 0.8% jump in September. Motor vehicles accounted for much of the increases, while other core components remained subdued.
Overall PPI surged 1.1% in September, when both food and energy rose, and fell 0.1% in October, when both food and energy declined.
The Labor Department is scheduled to release the November PPI report at 8:30 a.m. EST Friday.
In a Market News International survey of 19 economists, the median forecast for November PPI was for a 0.2% rise, with forecasts ranging from unchanged to up 0.4%. Forecasts for core PPI centered on a 0.1% rise, with a range of unchanged to up 0.2%.
"Overall, this should be a 'friendly' PPI, suggesting that September's huge increase was a one-off event, and hardly the beginning of a worsening trend," said Carol Stone, economist at Nomura Securities International, whose forecasts match the Market News survey medians.
Auto sales were the biggest key to the September surge, posting a 2.0% rise, followed by a 1.1% rise in October.
"Seasonal distortions in auto prices are fairly common during the model year changeover, so we look for some moderation in auto prices in November," said Jay Feldman and Mike Cloherty, economists at Credit Suisse-First Boston.
Vehicle prices typically contract in November, analysts pointed out, following the introduction of more expensive models in September and October. This year should be no different, as renewed auto sales were likely helped in part by reduced prices.
Energy prices see-sawed in recent months, rising 2.2% in September, then falling 1.0% in October. Analysts expected a rise in energy prices due to higher oil, natural gas, and gasoline components, but disagree on the magnitude due to the timing of the PPI survey.
"Most of the latest rise in oil prices came too late to be captured in the November PPI sample (which was in the second week of the month)," said James F. O'Sullivan, economist at J.P. Morgan.
Analysts' expectations for energy range from a 0.1% rise to a 1.0% rise, depending upon how much of the gain in prices was captured by the survey.
Food prices have also fluctuated sharply in recent months, rising 1.0% in September and falling 0.7% in October. Analysts expect food prices to rise only slightly in November, on the back of a 2.2% rise in the USDA's prices paid index, offset by declining dairy prices.
In addition to autos, other components are expected to be tame. Computer prices are expected to post yet another small decrease, while drug prices are expected to flatten out following their 1.2% surge in October. Tobacco prices, which sharply boosted September's index, are expected to post another nearly flat reading in November after being unchanged in October.
Given the Market News International survey medians, overall PPI would be up 3.1% year-over-year, compared with a 0.1% year-over-year decline in November 1998. Core PPI would be up 1.9% year-over-year, below the 2.5% year-over-year rate in November 1998.
Concern about the pipeline measures of inflation were increased in October, as core intermediate goods rose 0.4% and core crude goods rose 2.4%. Both measures have been rising steadily in 1999, compared with declines in 1998.
"One area where price hikes have had (and are expected to continue to have) some degree of permanence is at the earlier stages of processing," said Joseph Abate, Lehman Brothers economist.
The fact that these price pressures have lost some steam before they get to the finished goods level is only a small concession, as analysts remain concerned that the Fed is on the verge of further rate hikes -- and just looking for a reason to pull the trigger.
"Until recently, the Fed has been willing to tolerate robust growth only so long as inflation remains dormant. A third strike-out this month, with widespread price hikes, would probably move the Fed closer to tightening in early 2000," Abate said. |
