The Producer Price Index

11/17/2009

Trader Commentary
______________________________________
The Producer Price Index measures the average change in prices received by producers of goods in all stages of domestic production. When we see PPI numbers that are low, it means producers aren’t getting higher prices for their goods. This is evidence that inflationary pressures are still low. If producers could get higher prices for their goods, they would…and we would all be paying more for them (inflation). Today’s releases on the PPI numbers came in lower than anticipated.
Industrial Production and Capacity Utilization numbers show how much factory production changed and what percentage of total production capacity is being used. Today we see that capacity utilization for October was 70.7%. This indicates there is still plenty of capacity available for production. Inflationary expectations will start to increase when capacity moves into the mid-80%s. Again, it looks as if inflation is not a problem for now.

Another interesting figure that was released today indicated that net foreign purchases of U.S. treasuries increased in September with Japan, China, and the UK big buyers. This is good since we’ll be seeing plenty of treasuries coming into the market going forward.

Despite benign inflation numbers today, bonds are drifting a little lower early in the day.

-Doug Harsham