Energy boosts headline PPI, core remains tame

An 8% jump in energy prices and a 0.4% increase in food prices pushed the Producer Price Index up 1.7% in August, more than erasing July's 0.9% decline. The core rate, which removes the more volatile food and energy categories, increased a modest 0.2%.

As the economy pulls out of the worst recession in 70 years, there is little in the way of inflation at the wholesale level. Year-over-year, core prices eased from 2.6% to 2.3%, while the headline PPI registered a 4.3% decline.

With plenty of slack still in the economy and wages barely budging, inflation is unlikely to be much of an issue at least through the remainder of 2009 and probably well into 2010. The only item that may squeeze profit margins is the recent rise in commodity prices, but gains in productivity should mitigate much of this concern.

2011 and 2012 become much more problematic given that huge amount of stimulus still in the system.