Friday, December 14, 2007

CPI, Industrial Production Rise More Than Estimates

- The Consumer Price Index for November rose .8% versus estimates of a .6% gain and a .3% increase in October.

- The CPI Ex Food & Energy for November rose .3% versus estimates of a .2% increase and a .2% gain in October.

- Industrial Production for November rose .3% versus estimates of a .2% gain and a downwardly revised .7% decline in October.

- Capacity Utilization for November rose to 81.5% versus estimates of 81.7% and 81.4% in October.

BOTTOM LINE: US consumer prices rose more than expected on higher energy costs, Bloomberg reported. Core consumer prices are now rising at a 2.3% rate over the last 12 months versus the long-term average of 3.0%. Energy prices surged 5.7% versus a 1.4% gain the prior month. Food prices rose .3% versus a .3% gain the prior month. The 10-year TIPS spread, a gauge of inflation expectations, is rising to 2 basis points to 2.36% on the report, but is still down from 2.48% less than three weeks ago. The CPI should begin decelerating again next month on the recent decline in energy prices. I continue to believe inflation fears have peaked for this cycle and the long-term trend of disinflation remains firmly in tact.

Industrial Production in the US rose more than expected last month as factories made more cars and consumer electronics, Bloomberg reported. The report shows manufacturing, boosted by record demand for US products abroad, is holding up well. US exports in October soared to a record $141.7 billion. Utility production dropped 1.3% for a second straight month on unseasonably warm temperatures across the nation. Production of consumer durable goods, including autos, furniture and electronics, rose .9% and motor vehicle production surged 1.7%. I continue to believe manufacturing will help boost overall US growth over the intermediate-term as companies gain confidence in the sustainability of the current expansion and rebuild depleted inventories as a result of booming exports.

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