Consumer Prices Steady, Producer Prices Surge

April 22--The sluggish economy and a slowing in the rise of energy prices kept the CPI in check, as it increased a mere 0.3% in March.  However, the PPI rose a rapid 1.1% in March, as producers deal with continued elevated prices for energy and food.  In a spot of good news, Industrial Production inched up 0.3% in March.  The housing market correction continues, as New Residential Construction fell 11.9% in March. 

Consumer Price Index:
The consumer price index rose 0.3% for the month in March, after holding steady in February.  Weak demand from consumers, coupled with a slower rate of growth in energy prices in March kept inflationary pressures low.  The core CPI, which excludes food and energy prices, inched up 0.2% for the month.  On a year-ago basis, the top-line CPI has increased 4.0% while the core CPI is up 2.4%.

Producer Price Index:
Producer prices for finished goods surged 1.1% in March, after a 0.3% fall in February.  Energy and food prices increased rapidly in March, at 2.9% and 1.2%, respectively.  Moreover, core prices, which exclude food and energy prices, increased 0.2% for the month.  If demand remains stable during the coming months, topline inflation will likely remain stable, thus giving monetary policy makers some leeway to stimulate growth.

Industrial Production:
Industrial production increased 0.3% in March.  Utility output led the rise, surging 1.9%, mining rose 0.9%, and manufacturing output inched up 0.1%.  Capacity utilization also increased and now stands at 80.5%.   The most recent report contained positive revisions to previous data.  In the fourth quarter of 2007, industrial production increased 0.2% at an annual rate, an improvement from the originally reported -1.0%.  Growth in the first quarter was flat.  As real GDP growth becomes negative, vehicle production drops, and real estate investment plunges, expect industrial production to remain weak this quarter. 

New Residential Construction:
New home starts plummeted, falling 11.9% to 947 thousand units an annual rate in March, accompanied by a decrease of 5.8% in housing permits.   Compared to March of 2007, housing starts are down 36.5%.  The housing market remains soft, even with lower mortgage rates, as the ongoing credit crisis continues to deter potential buyers.  Moreover, April’s National Association of Home Builders housing market index of builder optimism remained unchanged at a very low level.

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