While the U.S. trade deficit jumped to new highs in December, there are also some emerging signs of inflation in the U.S. economy. The Producer Price Index rose 1.6% in January, the U.S. Dept. of Labor reported Thursday.

This increase followed a 0.1% decrease in December and a 0.3% decline in November. Economists are split on how seriously the report should be read.

The January jump in PPI was well in excess of consensus expectations for a 0.4% rise. “In fact, this is the sharpest monthly rise in producer prices since January 1990,” reports RBC. “Rising energy costs were substantially behind the surge, but even core producer prices (excluding food and energy) were up by about 0.9% which was well above consensus expectations for a 0.1% gain. Diminished discounting by the big-three auto companies was behind much of this.”

RBC says that the big PPI jump must be placed in the context of falling producer prices in the previous two months, while simultaneously firing a shot over the bow of those arguing that deflation has gripped the U.S. economy.

But BMO Nesbitt Burns is much gloomier about the numbers. “January PPI was bad news in the United States,” Nesbitt says unequivocally. “As surely as death and taxes, inflation doves will deconstruct the figures to show that without cars, trucks, etc, there is no problem. Don’t believe it. The Fed has beaten deflation, but the price has been a little inflation pressure.”

“Pipeline price inflation is bubbling up,” Nesbitt says. “Core crude and core intermediate goods readings continued their accelerating trends in January. Intermediate prices rose 1.3% in the month (core +0.3%), with most of the underlying sectors seeing price gains. Meanwhile, crude prices surged 6.9%, led by energy prices. Even so, core crude prices rose 1%. This makes perfect sense and is being powered by the weaker dollar, as well as highly stimulative monetary policy.”

CIBC World Markets is in the dove camp. It says, “Don1t read too much into a seemingly dramatic reversal from December’s deflationary reading … there is little reason to fear a return to an inflationary environment. Those price hikes for autos come after two months of significant declines in auto prices when automakers offered rich incentives to get cars off the lot. When these incentives were removed in January sales plunged. It won’t be too long before renewed incentives push the PPI back down to earth.”

CIBC says, “A core PPI rate of 0.5% is similar to levels seen last October and once automakers pile the incentives back on, the core should remain close to zero in year-over-year terms providing downward pressure on CPI.” It notes that with a flood of economic data there was no obvious effect on the market from this PPI surprise.

“Our view is that the market will ignore this report as it watches the Middle East,” concludes Nesbitt. ‘However, we believe that the market will ultimately regret ignoring this now.”