Ian Shepherdson Core Quotations

After four straight months of worse-than-expected core CPI numbers, (this report provides) some relief.

This strongly suggests that core finished goods' prices will slow over the next few months,

The headline was pulled down by slightly bigger declines in gasoline, natural gas and fuel oil prices than we expected. Core PPI is now up just 1.7% year over year, down from May's 2.8% peak. It will slow further in the wake of the slowing in raw-materials prices, but the Fed cares much more about the labor market than PPI.

It is tempting to blame the softness of core sales on the surge in gas prices, but we think it is too soon for that.

November will be better, but the past year's flat trend in the core deficit seems to be breaking.

If this continues, it can do real damage to core inflation, making it all the more important that the Fed succeeds in slowing the economy to ease inflation pressure.

Our measure of core sales, which excludes autos, gas and food, rose a pitiful 0.1 percent, the worst performance since April and impossible to square with Mr. Greenspan's assertion last week that the economy is regaining traction,

Our forecast was undone by two factors. The impact of the post-Katrina spike in oil prices is lingering; it will eventually fade. Second, trade in goods ex-oil and aircraft -- core -- deteriorated again.

Core sales slowed hugely at the end of the year, almost certainly as a result of the cash flow hit caused by the post-Katrina leap in energy prices. This is now over, and sales should rebound strongly in the first quarter.

Core exports are trending up at about 10 percent year over year, not enough to prevent a widening of the deficit.

The details are not as important as the overall message, which is that to the extent that the U.S. economy faces an inflation threat, it is not coming from core goods prices.