Implications: Producer prices rose more than 1% for the second consecutive month in September, mainly due to higher energy prices. The cost of gasoline rose 9.8% while diesel fuel rose 9.2%, the biggest gain since December 2010. The two month change in the PPI is the largest increase since July 2008. Meanwhile, "core" prices, which exclude food and energy and which the Federal Reserve claims are more important than the overall number, were unchanged in September; the first time it was unchanged since October 2011. Even with being flat for a month, "core" prices are up at a 2.7% annual rate in the past three months, well above the Federal Reserve's 2% target. Some analysts may suggest that with the PPI only up 2.1% from a year ago, the Federal Reserve has room for more quantitative easing. We believe monetary policy is loose enough already. The problems that ail the economy are fiscal and regulatory, not monetary. Adding more excess reserves to the banking system is not going to boost economic growth. In fact, the tepid growth coming out of the US economy due to fiscal and regulatory issues, as well as uncertainty, is probably holding prices back. Once the election has passed and more certainty has entered the equation, no matter who wins, expect the economy and prices to start to pick up.
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