Interest Rate Roundup

Wednesday, June 14, 2006

3 out of 3 reports show nasty inflation

Well, we now have the Producer Price Index and Consumer Price Index for May under our belts. Both stunk up the joint.

* The Producer Price Index jumped 4.3% year-over-year in May, the biggest rise since January. Core PPI gained 0.3% vs. the 0.2% Wall Street forecast, while core intermediate and crude goods surged a whopping 6.3% and 26.8% YOY.

* The overall CPI jumped 0.4% in May after rising 0.6% in April. Prices have now surged at an annualized rate of 5.2% in the first five months of 2006. That’s much worse than the CPI’s 3.4% increase in 2005 and almost DOUBLE the 2.7% inflation rate in 2004.

* So-called “core” inflation climbed 0.3% for the third month in a row. This measure excludes food and energy, and it’s closely watched by both the Fed and the markets. Prices rose for a broad range of goods and services – housing, medical care, airfares, recreation, you name it.

Worth noting: This time, bonds sold off on the "bad" news. They had shrugged off the PPI and import price data. Is this the start of a new down leg in bond prices? Is it just a blip? We'll see.

Incidentally, many financial stocks have been taken out back and shot these past few days. Guess the "one and done" crowd -- which keeps buying bank stocks on the assumption the Fed is thisclose to being done -- got it wrong ... again.


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