Latest CPI Data and What It Means For Metals Markets

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As much time as we like to spend discussing specific metals markets, we find ourselves paying extra close attention to certain key economic indicators because at the end of the day, these economic indicators make for excellent dashboard indicators when assessing supply and demand. For nearly every one of our price forecasts we outline a dashboard of key metrics to watch. One such metric that comes up in several places involves the CPI (Consumer Price Index) and its impact on interest rates.

In January, the CPI increased by 0.2%, according to the Bureau of Labor Statistics. That increase came primarily from the energy index and the gasoline index, in particular. Though the electricity index declined, fuel oil and natural gas increased. The other increases came from medical care and used cars and trucks. But if one strips out the energy and food prices (considered quite volatile), prices actually fell slightly (by 0.1% in January), the first price decrease since 1982, according to the Wall Street Journal.

And though the title of that article, “Flat Prices Bode Well for Economy, ” appears upbeat, (particularly for consumers) not everyone thinks low prices represent good news. First, consider the case of Japan¦.ten years on most can’t consider deflation a positive trend. We suspect that manufacturers of metal-intensive white goods feel more pain than others because they experience the cost inflation pressure on the buy side and an inflexible pricing environment on the sales side. Margins become challenged. But CPI data also puts the damper on the need to raise interest rates (to contain inflation). According to William Dudley, president of the Federal Reserve Bank of New York, “There is just no inflation pressure in the US, so our focus has to be on growth and jobs. One economic forecasting group that we heard in late December does not believe inflation will rear its ugly head until 2011.

But if flat to falling prices characterizes the consumer markets, volatility characterizes metals markets. Download a free white paper we wrote about managing commodity volatility by filling out this form:

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–Lisa Reisman

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