Watching the Inflation Signals

By JONATHAN FUERBRINGER :

Treasury inflation-protected securities appear to be worrying more about inflation. These securities, commonly known as TIPS, provide a rough measure of inflationary expectations, and the TIPS barometer is rising. This reading is done by subtracting the yield on one of these securities from that on a comparable regular Treasury security. As of Friday, this difference, using the 10-year maturity, was 2.53 percentage points, up from 2.25 points on Sept. 21, the recent low.

The TIPS market isn't the only sign that inflation may be accelerating. The Producer Price Index for finished goods shot up 0.5 percent in November, the government reported Friday, more than twice the forecast. The index is now up 5.0 percent over the last 12 months, the biggest increase since the period ending in December 1990.

Another sign is found in the Consumer Price Index for October. Energy and food price gains actually slowed a little that month, compared with their pace over the last 12 months. The three-month compound annual rate of increase in the energy sector was 14.8 percent, down slightly from the 15.2 percent increase over 12 months. In the food sector, the three-month rate of increase was 2.6 percent, down from the 12-month increase of 3.4 percent. But prices were accelerating elsewhere - in transportation, in personal care products and in personal care services, for example. Prices of personal care products rose 0.3 percent over the last 12 months but were up 1.6 percent over the previous three months, at an annual rate.

Enough increases occurred to push up core inflation, which excludes food and energy, at a three-month annual rate of 2.3 percent through October, compared with the 12-month increase of 2 percent. But that three-month rate has been volatile: it was just 1 percent in August, compared with 2.6 percent in June.