Diane Swonk, Chief Economist
Mar. 17, 2010 – 7:45 a.m. CT
Energy and Tobacco Temper Producer Inflation
The Producer Price Index dropped 0.6% in February, on the heels of significantly lower energy inflation. Tobacco, which is overweighted in the index, also declined.
The core (non-food and non-energy) index inched up 0.1% during the month, buoyed by an increase in vehicle prices, which is hardly a hotbed of inflation.
The Bottom Line: Inflation remains subdued across all stages of production, reaffirming the Fed's decision yesterday to keep rates low for an "extended period." The forecast for an increase in rates in December of this year holds, but could be moved out to 2011 if the economy and inflation don't begin to accelerate more rapidly soon.
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