Downstream inflation shows up in Producer Prices Index

By Tom Stundza -- Purchasing, 5/21/2008 10:50:00 AM

Producers have started to modestly pass higher raw materials costs downstream to the prices of finished goods. The producer price index for finished goods rose 0.2% in April on a seasonally adjusted basis after a 1.1% increase in March, the Labor Department reported Tuesday. The core index, which excludes food and energy items, climbed by 0.4% last month, seasonally adjusted. It rose 0.2% in March after increasing 0.5% during February.

However, a weak overall economy and sluggish consumer demand will make it difficult for companies to raise prices to consumers, analyst Joshua Shapiro of MFR Inc. tells the Wall Street Journal. At the same time, prices of materials will be rising, which suggests that corporate profits will be under pressure going forward. Last week, the Reuters/University of Michigan index of consumer sentiment for early May showed consumer expectations for inflation over the next year rose to 5.2% from 4.8% a month earlier, the highest since 1982.