U.S. Producer prices are up 9.8% year over year… but we’re not alone

Posted August 19, 2008

Producer Prices in the United States and Europe are up! So how do you reconcile this with the diametrically opposed mission statements of the Fed and the ECB?

by J. Christoph Amberger

Baltimore — (TFN): The Labor Department reported that its Producer Price Index (PPI) increased by 1.2% in July and by 9.8% in the past year. A hefty increase… but given the press we’ve had on gasoline, energy, milk, grain and candy bar prices, it probably did not come quite unexpected.

My colleagues in the Dollar Bear camp like to blame inflation on Ben Bernanke, the Fed, and the decline of the dollar against major currencies since 2001. It’s an easy sell.

Extrapolating from this, inflation in other countries — those with tight-fisted central banks — ought to be a pittance. Take the euro, for example: A symbol of the ECB’s commitment to fiscal responsibility.

But then look at the numbers:

In the United States, the annual Producer Price Index for finished goods rose 9.8% in the 12 months that ended in July. In the same period, German producer prices jumped 8.9% year-to-year — the fastest rise in nearly 27 years, based on data from the Federal Statistics Office.

Now, following the argument of the Dollar Bears, inflation in the U.S. can be blamed on that fact that the dollar buys less oil, Volkswagens, Beaujolais, and Mozart Balls than it used to. But the strong euro buys more gasoline, Hanes t-shirts, Raytheon anti-missile batteries, and pallets of Schlitz than it used to. That, after all, is the mission of the ECB.

So how come the difference in wholesale price inflation is just 0.9%?

While U.S. inflation numbers will revive the sagging chorus of the dollar doomsday sayers into predicting fresh new lows of the greenback against the euro, I wonder if they will be able to maintain the happy oblivion of economic realities in other countries.

My money, as I said last Sunday, remains on the dollar at this point.

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