Producer Prices Rise Stronger Than Expected in January

Like last week's CPI report, producer prices rose more than expected in the month of January. Solid gains in food (1.7%) and energy (1.5%) drove the overall result. Excluding energy and food, prices were still uncomfortably strong. We still believe slower economic growth will place downward pressure on inflation in the second half of the year.

Food & Energy Lift the Headline Index

- The overall PPI rose 1.0 percent in January relative to the previous month, bringing the year-over-year measure up to 7.4 percent from 6.3 percent.
- Even excluding food and energy, prices rose at a solid clip last month, up 0.4 percent.

Commodity Price Pressures Still Present

- Inflationary pressures further back in the production pipeline bounced back this month. Commodity price risk is present.
- Although consumer and producer prices rose at a stronger-than-expected pace in January, we believe the Fed is more concerned with economic growth prospects than inflation and will continue to ease monetary policy at the Mar. 18 FOMC

Wachovia Corporation