Producer Price Index Rises

The past two years for the most part, have been fairly easy decisions for the Federal Reserve, as far as monetary policy is concerned. Where, despite the fears that inflation would derail Fed policy, it was clear that they had the foresight to see the implosion in commodity prices coming, before anyone else. However, it appears as if the economic situation could be changing as a recent uptrend in the rise of producer prices (wholesale prices used to produce various goods / services) is only continuing to increase. Recent evidence of this can be found in a January report, which found that producer prices rose faster than expected, rising 1.4%. This follows a larger than expected reading for December of .7%. Within the number itself, the largest increases were mainly attributed to energy and the cold weather that was experienced by much of the nation.

What this shows; is that the Fed may have to slowly begin reversing the policy, which has led to historically low interest rates. While the prospect of rising inflation may sound alarming, at this point in the economic recovery, this is a sign that the economy has stabilized. As both consumers and businesses are increasing demand for various goods and services. This is a necessary first step that is required, as the markets are telling central banks around the world, that they can begin to reverse the massive stimulus packages that were used to stabilize the world economy.