The US dollar initially slipped on the release of the US Producer Price Index this morning, but how the greenback reacts throughout the day should be interesting as this report tells two different stories about the inflation picture in the US. The headline reading plummeted by the most on record during the month of October, which helped to drag the annual rate to a one-year low of 5.2 percent from 8.7 percent. The bulk of the declines were in crude goods, as the energy component tumbled 24.9 percent while foods slumped 11.1 percent. This is similar to the US import price readings we saw late last week. However, the Federal Reserve may find it somewhat disconcerting that the Producer Price Index excluding food and energy actually rose 0.4 percent during the month and pushed the annual rate to a nearly 20 year high of 4.4 percent from 4.0 percent. While the Fed is likely to keep its focus trained on the downside risks to growth, this rise in costs for less volatile goods at the factory gate may make the central bank nervous.

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