US PPI jumps, BoJ holds rates

So maybe the Fed is right to remain worried about inflation in the US. From Reuters:

A spike in energy prices sent the producer price index up 2 percent, the largest increase since a matching rise in November 1974, the Labor Department said on Tuesday.

At the same time, prices excluding volatile food and energy costs climbed 1.3 percent, the biggest gain since July 1980, as car and light truck prices bounced back from an October drop.

However, stripping out vehicle prices, core producer prices were up just 0.2 percent and analysts said the report did not signal a sudden resurgence of inflationary pressures.

"If you take the core PPI changes over the past two reports, they average a monthly 0.2 percent gain," said Michael Gregory, senior economist at BMO Capital Markets in Toronto. "As such, there is nothing alarming in the underlying trend."

Meanwhile, there were conflicting indications from housing.

Meanwhile, housing starts increased 6.7 percent in November after a sharp decline in October. But permits for future construction, an indicator of builder confidence, fell 3 percent, the Commerce Department said.

So perhaps the inflation concern isn't clear-cut in the US. But in Europe, central bankers have been even more concerned. Yesterday provided more justification for the concern.

In Germany, industrial producer prices rose 4.7 percent in November 2006 from the corresponding month of the preceding year. Prices are likely to remain supported by a relatively robust economy as the Ifo institute’s business climate index increased from 106.8 in November to 108.7 this month.

Meanwhile, British house price inflation stayed high as the Royal Institution of Chartered Surveyors' house price balance eased to 47.4 in November from a revised 47.7 in October but the sales-to-stock ratio rose to 42.5 percent from 41.0 percent in October, the highest in over two years.

However, inflation in Canada was relatively muted at a 1.4 percent annual rate in November, though it was up from 0.9 percent in October. Prices were up 0.2 percent from October. Year-on-year core inflation moderated to 2.2 percent from 2.3 percent in October.

In Japan, inflation has been too muted. But that could end soon. From FT:

Koji Omi, finance minister, said the gross domestic product deflator, a broad measure of prices, would turn positive in the year to March 2008 for the first time in a decade. “The GDP deflator for the current fiscal year was minus 0.4 per cent, and that will become plus 0.2 per cent in fiscal 2007/08,” he said. “That shows the economy will become normal.”

In its annual economic projections, the government predicted real growth of 2.0 per cent next fiscal year, with nominal growth of 2.2 per cent. That would be the sixth straight year of economic growth, prolonging a recovery that is already the longest in since the war.

In the meantime, the Bank of Japan is watching and waiting.

As expected, the Bank of Japan’s policy board voted on Tuesday to leave the overnight call rate unchanged at 0.25 per cent in an unanimous vote that suggests it may be in less of a hurry than some thought to raise rates.

Toshihiko Fukui, bank governor, said on Tuesday in answering a question about the possibility of a January rate increase: “We will carefully analyse data that comes out until the next policy meeting and reach a decision, but we have no preconception.”