By Maulik Mody
The producer price index rose by 0.8% m/m in January, once again driven by high energy prices. Energy prices jumped 1.8% m/m after the 2.8% jump in the previous month. Gasoline surged 6.9% m/m. Surprisingly, food prices were not such significant driver in January, as they increased by relatively subdued 0.3% m/m. Core prices (ex food and energy) posted a 0.5% m/m increase, which was the biggest monthly increase since 2008. Core pipeline pressures picked up lately with core crude prices and core intermediate prices increasing for the sixth consecutive month. However, while producer pricing power is improving, retailers will likely still have difficulties passing higher prices onto consumer. Core PPI is best correlated with the core goods component in CPI. Core goods have been on a constant downward trend as of late, but there is a limit to how much further it could fall.
In January housing starts surged by 14.6% m/m above expectations, entirely driven by a 77.7% m/m increase in multifamily starts. Single family starts continued to decline posting a 1.0% decline in January, which followed an 8.4% m/m drop in the month prior. The strength in multifamily starts likely points to some pick up in demand for rental properties, as owners’ market continues to struggle from falling prices and surging foreclosures. Meanwhile, housing permits, the indicator of future activity, dropped 10.4%m/m, driven by a 23.8% decline in multifamily starts. Such a decline in permits likely points to a drop in starts in February. Unusually high volatility in housing starts and permits around the turn of the year also reflects builders’ attempts to get approval before the end of the year in anticipation of changes in building codes. Starts remain depressed by historical standards and confirms expectations of a prolonged and painful housing recovery.
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