PPI runs hot, Housing starts awful (I say that’s good)

Feb headline PPI rose 1.6% m/o/m, well above estimates of .7% and brings the y/o/y rise to 5.6%. The core rate rose .2%, in line with forecasts and is now a y/o/y gain of 1.8%, the highest since Aug ’09. Energy prices rose 3.3% m/o/m and food was up by 3.9%, bringing the y/o/y gains to 15% and 7.3% respectively. Inflation in the pipeline remained robust in both the intermediate and crude goods phase of production and at both headline and core. With respect to the markets focus on inflation, tomorrow’s CPI will be more relevant but this level of PPI creates a real dilemma for corporate America in what they want to eat in margin and what they want to pass on to the rest of us.

Both Feb Housing Starts and Permits were well below expectations and I say good because many areas of the country are still choking on the supply of too many existing homes and we don’t need so many news ones for now. Yes, the residential construction contribution to GDP will be impacted but its short term pain that the housing industry continues to need. Both single family and multi family starts and permits fell with multi family starts in particular falling sharply but only after a sharp spike in Jan. Single family starts are just 15k from the lowest level on record. Housing completions rose by 581k vs new starts of just 479k so there will be a short term impact on construction employment if the Feb trend in starts continues.

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