This is an overview of wholesale price inflation trends in the past year for commodities in industrial and construction channels. Overall, inflation was 6.3 percent in 2007, a significantly larger jump than in 2006.
Wholesale prices jumped 6.3 percent in 2007, due to a surge in fuel and food prices. Without fuel and food, core inflation saw a more moderate 2-percent increase, the Bureau of Labor Statistics reported.
The government attributed the faster overall rate of increase to the index of finished energy goods, which rose 18.4 percent in 2007 after a much shorter climb of 2 percent a year earlier. Finished consumer foods jumped 7.4 percent following a 1.7-percent increase in 2006.
The other key inflation index, the Consumer Price Index, rose faster than expected with a 4.1-percent increase.
Fed Chairman Ben Bernanke said recently that food and energy prices are expected to decelerate over the coming year.
Of more interest however, than the overall price gains in the past year, are gains in areas relevant to most MDM readers. Construction materials and components index was up 1.8 percent, materials for nondurable manufacturing were up 13 percent, and materials for durable manufacturing up 1.6 percent.
Manufacturers Alliance/MAPI Chief Economist Dan Meckstroth told MDM that raw food material and oil prices in 2007 drove the increases in the nondurable sector, while a moderation during the year of high prices in core commodities – including steel, copper and zinc – fuelled a smaller increase in durables as compared with 2006.
Mind the Gap: Inflation-Adjusted Growth v. Real Growth
Fed Cuts Rate
In response to worsening economic indicators, the Fed slashed short-term interest rates by 0.75 percentage points this week to 3.5 percent. In a release, the Federal Open Market Committee cited a weakening of the economic outlook, deteriorating conditions in financial markets, tightening credit, and a deepening of the housing contraction as well as some softening in labor markets.
The Committee said it expects inflation to moderate in coming quarters and raise rates when growth picks up.
Here are producer price inflation trends for the past year and December. Inflation by Commodity Group for fourth quarter and full year 2007 can be found here.
Construction Materials/Components: Up 1.8 %
Prices for materials and components for construction advanced 1.8 percent in 2007, after climbing 4.3 percent in 2006. In December, the index for materials and components for construction inched up 0.1 percent compared with a 0.1-percent decline in November.
Associated General Contractors of America Chief Economist Ken Simonson said recently that many observers expect that the end of the recent calm in materials prices is coming soon. \”Materials costs are beginning to turn up again, and labor costs have started to accelerate.\”
Materials for Durable Manufacturing: Up 1.6%
The index for materials for durable manufacturing was up 1.6 percent in 2007, following a 12.5-percent jump in 2006. In December, prices decreased 1.0 percent in December following a 1.1-percent advance in November. The primary nonferrous metals index fell 8.5 percent after rising 2.5 percent in the prior month. Prices for thermoplastic resins, building paper and board, and aluminum mill shapes also turned down.
Materials for Nondurable Manufacturing: Up 13.0%
The index for materials for nondurable manufacturing advanced 13 percent in 2007, following a 1.2-percent gain in 2006. In December, prices for materials for nondurable manufacturing edged up 0.1 percent in December after a 3.6-percent rise in November. Prices for basic organic chemicals, plastic resins and materials, and for paint materials declined after increasing in the prior month.
Basic Industrial Materials: Up 16.8%
The basic industrial materials index moved up 16.7 percent in 2007 following a 17-percent gain in 2006. In December, this index was unchanged after decreasing 0.5 percent a month earlier. Iron and steel scrap prices turned up 5.7 percent. The index for copper base scrap fell less than in November. The index for softwood logs, bolts, and timber was unchanged. By contrast, prices for aluminum base scrap declined 3.2 percent.
Crude Foodstuffs &Feedstuffs: Up 25.2%
Price increases for crude foodstuffs and feedstuffs grew 25.2 percent in 2007, compared with a 2.8-percent increase in 2006. The index climbed 4.3 percent in December after increasing 2 percent in the preceding month. Prices have particularly spiked in response to demand to make ethanol, tightening supply. The drought in 2007 also constricted supply, increasing prices.
Finished Energy Goods: Up 18.4%
The index for finished energy goods surged 18.4 percent in 2007. The index fell 1.9 percent in December. Leading this downturn, gasoline prices declined 4.8 percent in December following a 34.8-percent surge a month earlier.