Interest Rate Roundup

Friday, April 13, 2007

Inflation report #2: Some good, some bad

The Producer Price Index is the second of three key inflation reports that comes out every month. There was a mix of good and bad news in the March report just released. The details ...

* The finished goods PPI gained 1% in March, above expectations for a 0.7% rise. That pushed year-over-year PPI inflation up to 3.2%. At the same time, the "core" finished goods PPI was unchanged, below expectations for a 0.2% rise. Good news? Yes. But ...

* Look further up the inflationary food chain and you see things aren't so rosy. The core intermediate goods PPI rose 0.2%, resulting in a 3.5% YOY gain. And at the earliest stage of production, core crude goods inflation surged 7.7% from February. The YOY inflation rate here is a whopping 24.6%.

That may be why the bond market reaction is fairly muted -- the Long Bond was recently up just 5/32 on this news. Yields have barely budged -- down by about a basis point across all maturities.

In other news, the February trade deficit came in a bit lower than expected -- $58.4 billion vs. a forecast of $60 billion. But the dollar isn't getting much of a bounce from that news. It's basically trading at the same levels it was before the 8:30 data hit the tape.


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