Food and Energy Prices on the Rise

August 26, 2008--In July, the Producer Price Index rose as higher food and energy prices worked their way through all stages of production. The housing market continues to show signs of weakness; new residential construction fell in July. Last, the Conference Board's Leading Indicators index is at a 4-year low.

 

Producer Price Index
Producer prices for finished goods increased 1.2% in July, after surging 1.8% in June. Again, a large increase in food and energy prices fueled higher prices for producers. Inflation appeared at all levels of production, including core intermediate goods, a leading indicator of consumer inflation. In July, materials used for durable and nondurable goods rose 1.5% and 5.4%, respectively. Moreover, core prices, which exclude food and energy prices, increased 0.7% for the month.

 

New Residential Construction
Housing starts plummeted 11.0% in July to 965 thousand units, following an increase of 10.4% in June. Permits for new housing also fell, down by 17.7% during June. Compared to July 2007, housing starts are down 29.6%. The housing market remains soft--even with lower mortgage rates--as the ongoing credit crisis continues to deter potential buyers.

 

Conference Board's Leading Indicators
The Conference Board’s Index of Leading Indicators decreased 0.7% in July, after going unchanged in June. In particular, the index was dragged down by a sharp decline in residential building permits, spurred by a change in building codes that pulled new multifamily construction forward into June. If not for that drop, the leading index would have only fallen 0.2% in July. Weakness was evident elsewhere, as lower stock prices and higher jobless claims also dragged on the index. July's reading now puts the index at its lowest point since October 2004 and may be consistent with an economy that is in slowing or contracting.