Morgan Stanley economist David Greenlaw thinks deflation fears are looking tired after today’s higher than expected Producer Price Index (PPI) result.
Still, there’s no reason yet to get worried about inflation either. Most of the PPI upside was caused by price rises for energy and metals, while inflation within most core categories (ex-food and energy) remained subdued:
David Greenlaw @ Morgan Stanley: Both headline and core came in somewhat higher than anticipated. Energy prices posted an even sharper than anticipated gain.
The early stage readings showed some elevation in energy and metals prices. In particular, rising quotes for iron, steel, copper and aluminium helped to push up the core crude materials gauge — which jumped a whopping 6.6% on top of a 4.5% gain in December.
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If anything, thank the current economic recovery for keeping deflation at bay.
The bottom line is that deflation risk seems to be falling as economic recovery takes hold but, at the same time, we don’t expect the recent build-up of inflation pressures at the early stages of production to be sustained.
[image url="http://static.businessinsider.com/image/4b7d4fcc000000000076adf5/image.jpg" link="lightbox" caption="" source="" alt="Chart" align="left" size="xlarge" nocrop="true" clear="true"]
(Via Morgan Stanley, Economic Data Bulletin, David Greenlaw, 18 Feb 2010)
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