According to the U.S. Bureau of Labor Statistics, the Producer Price Index (PPI) increased 0.3% in December after increasing 0.2% in November, coming in a bit higher than the Streetfs estimate calling for a 0.1% increase. However, eliminating the noise effects of food and energy, PPI (core PPI) came in at 0.1%, in line with the Streetfs estimate, but higher than the 0.0% posted in November. This monthfs PPI rise was led by a 1.0% increase in food prices, half of which flowed from a boost in prices for fresh and dry vegetables. Core PPI from a year-ago perspective increased 2.9%.

PPI, which is a measure of inflation at the wholesale level, has been very modestly increasing, but so far there are no major concerns of inflation. In fact, the sluggish macroeconomic backdrop is putting pressure on demand at virtually all stages of the production chain, making it more probable that price declines may actually be the near term reality. The lack of inflation has also allowed the Federal Reserve to keep a key interest rate at a record low of zero to 0.25% since December 2008 in an effort to support economic recovery.

According to HSBC Holdings PLC, preliminary China PMI rose to 49.0 in December from a final reading of 47.7 in November. While the increase is positive, this gauge of nationwide manufacturing activity still stood in contraction territory, as a reading below 50 indicates a contraction in activity from the previous month. China is making efforts to promote growth, and perhaps this increase reflects these attempts, but it is certainly not enough, making it more likely that the nation will provide more liquidity soon, particularly as it continues to feel the effects of the eurozone sovereign debt crisis. Moreover, with inflation decelerating in the region, room for sharper monetary as well as fiscal intervention is clearly being generated.