Tuesday, October 18, 2005

Uh oh

Producer price surge biggest in 15 years

By Tim Ahmann
Tuesday, October 18, 2005; 8:57 AM

WASHINGTON (Reuters) - U.S. producer prices shot up by an unexpectedly large 1.9 percent last month, the biggest gain in more than 15 years, as energy costs surged in the wake of hurricanes that devastated the U.S. Gulf Coast, a government report showed on Tuesday.

However, outside of volatile food and energy costs, prices received by farms, factories and refineries were relatively restrained, advancing just 0.3 percent, the Labor Department said.

Prices for U.S. government bonds and stock futures fell, while the dollar strengthened, as the report kept alive concern in financial markets over inflation and interest-rate hikes from the Federal Reserve.

Wall Street economists had expected producer prices to rise just 1.1 percent, with prices outside of food and energy up a tame 0.2 percent.

That's a real gain of 1.9% in the month of September, and is not annualized over a year. The annualized rate, based on September's inflation, is a 22.8% inflation rate.

And that's just at the producer level. You can expect the consumer price level to rise about 3-5% higher than that (meaning for September, it should come in just over 2%).

All this, ahead of the fourth quarter holiday shopping AND home heating season, it does not look good for several sectors of our economy. I expect we may see massive layoffs in several industries, and certainly some weakening in consumption and of course, home buying and equity borrowing.

In other words, we're on the brink of yet another recession in the Bush years.