Inflation appears to worsen, but news isn't all bad
The producer price index was unchanged in December after rising in the previous two months. Both food and energy prices fell in December, helping to offset gains elsewhere. The PPI ended up 3.6 percent higher than year ago levels - faster than last year when the PPI rose 2.9 percent. Excluding food and energy prices, the PPI gained 0.3 percent in December. At least part of the rise was due to higher car and light trucks. Given the sharp falloff in motor vehicle sales the past couple of months, automakers are sure to re-introduce incentives to lure customers back. These will show up in the PPI in coming months. In any case, the core PPI was up 1.2 percent in 2000 compared with a 0.8 percent gain in 1999.

On the surface, the PPI figures didn't look so good. That is, it appeared that inflationary pressures were accelerating. Actually, both the intermediate and crude materials indexes were unchanged in December. The intermediate goods index excluding food and energy prices is up 1.6 percent from year ago levels; the crude materials index (excluding food and energy) is down 5.8 percent. This bodes well for coming months because it means that inflationary pressures are not developing in the pipeline.