Highlights
The Fed got its last look at an official release on inflation before its vote on interest rates this afternoon with the August producer price index. Overall producer prices slipped in August due to a temporary dip in energy costs but the core actually edged up. Despite initial euphoria in the markets over a sharp energy-based drop of 1.4 percent in the headline number, the data are actually mixed. Also, the Fed knows energy costs are rebounding and will discount the headline number. The overall PPI fell 1.4 percent in August, following a 0.6 percent spike in July. August's figure was well below the market forecast for a 0.3 percent drop. The core rate rose 0.2 percent in August, following a 0.1 percent rise the month before. The August core rate was just above the consensus forecast for a 0.1 percent rise in the core rate. Within the core, consumer goods excluding food and energy rose 0.2 percent in August while capital goods edged up 0.1 percent.

The year-on-year rate for the overall PPI dropped to up 2.1 percent in August (seasonally adjusted) from up 3.9 percent in July. The year-on-year core rate came in at 2.2 percent in August, down from 2.4 percent in June.

For the overall PPI, weakness primarily was in energy. By special groupings, energy declined a monthly 6.6 percent, following a 2.5 boost in July. August's fall in energy was led by a 13.8 percent drop in gasoline prices. Other energy prices also declined for residential gas, heating oil, and electricity - down 8.5 percent, 6.0 percent, and 0.2 percent, respectively. Consumer food prices also contributed slightly to the decline in the headline PPI in August, slipping 0.2 percent following a 0.1 percent dip in July.

Overall prices at the crude level of production were also pulled down by energy costs and fell 3.0 percent in August, following a 1.2 percent rise in July. Excluding food and energy, crude prices rose 1.3 percent after no change the month before. Prices at the intermediate level fell 1.2 percent in August, following a 0.6 percent gain in July. Excluding food and energy, intermediate prices fell 0.5 percent, following a 0.2 percent gain in July.

Today's report provides mixed news for the Fed before its interest rate vote this afternoon. Most are concerned that the energy drop is temporary while the core worsened slightly. This report does not help the Fed ease later today. The Fed will have to look at the overall picture of current economic conditions, its forecast for real growth and inflation, and how the financial markets are recovering from subprime credit problems while deciding its current interest rate decision. Nonetheless, the markets probably will overlook the issue of energy improvement being temporary and equities and bonds will both see the report as a positive.

2007 Release Schedule

Released On: 1/17 2/16 3/15 4/13 5/11 6/14 7/17 8/14 9/18 10/12 11/14 12/13 Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov