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2.7%  Q1 GDP    4.57%  avg. 30-year mortgage     9.5%  Unemployment

Sept. producer prices fall, housing starts rise

Producer prices -- what people who make things have to pay for materials -- unexpectedly dropped in September, and new housing starts were up but well below forecasts.

Overall, producer prices dropped 0.6 percent in September, but if you remove the volatile food and energy categories to get what's called the "core" price index, prices were down 0.1 percent.

Forecasters expected core prices to rise 0.1 percent. Quickly rising prices would stoke fears of inflation, but we could actually use a healthy dose of inflation to stave off disinflation, what's happening now, or the much worse deflation. In deflation, prices drop steeply, and although that may on the surface sound like a good thing, they take wages with them and together, they create an economic contraction. The worst sort of these was seen in the Great Depression.

Year-over-year producer prices are down 4.8 percent, a lot of which has to do with the plummeting price of oil, while core producer prices are up 1.8 percent, an encouraging sign.

On housing, forecasters expected new starts to rise to 607,000, a figure far beyond the September number of 573,000. Still, they ticked up 0.5 percent in September, compared with a 1 percent decline in August.

The September number for new building permits -- a different figure than housing starts -- was actually down 1.2 percent from August, indicating a reluctance for buildings to put spade to earth. Building permits were up 2.8 percent in August compared with July.

-- Frank Ahrens
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By Frank Ahrens  |  October 20, 2009; 8:55 AM ET
Categories:  The Ticker  | Tags: housing starts, producer prices  
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