Written by Steven Hansen
The Producer Price Index year-over-year inflation grew from 2.6 % to 2.8 %.
Analyst Opinion of Producer Prices
The Producer Price Index again surged year-over-year. Here is what the BLS said in part:
Nearly half of the increase in prices for final demand services can be attributed to margins for fuels and lubricants retailing, which surged 24.9 percent. The indexes for machinery and equipment wholesaling; transportation of passengers (partial); apparel, jewelry, footwear, and accessories retailing; chemicals and allied products wholesaling; and portfolio management also advanced. In contrast, margins for food retailing moved down 2.1 percent. The indexes for food and alcohol wholesaling and for loan services (partial) also decreased.
Almost half of the rise in the final demand goods index was the result of higher prices for pharmaceutical preparations, which increased 2.1 percent. The indexes for industrial chemicals, fresh and dry vegetables, diesel fuel, beef and veal, and tobacco products also advanced. Conversely, prices for gasoline fell 4.6 percent. The indexes for light motor trucks and pork also moved lower. (In accordance with usual practice, most new-model-year passenger cars and light motor trucks were introduced into the PPI in October.
This much gain in the Producer Price Index was not expected – and unless you are the twisted follower of the Fed – this increase is not good economically.
The PPI represents inflation pressure (or lack thereof) that migrates into consumer price.
The market had been expecting (from Bloomberg):
| month over month change | Consensus Range | Consensus | Actual |
| PPI-Final Demand (PPI-FD) | 0.0 % to 0.3 % | +0.1 % | +0.4 % |
| PPI-FD less food & energy (core PPI) | 0.1 % to 0.3 % | +0.2 % | +0.4 % |
| PPI-FD less food, energy & trade services | 0.2 % to 0.3 % | +0.2 % | +0.2 % |
The producer price inflation breakdown:
| category | month-over-month change | year-over-year change |
| final demand goods | +0.3 % | |
| final demand services | +0.5 % | |
| total final demand | +0.4 % | +2.8 % |
| processed goods for intermediate demand | +1.0 % | +5.0 % |
| unprocessed goods for intermediate demand | +0.0 % | +7.7 % |
| services for intermediate demand | +0.3 % | +2.9 % |
z ppi1.png
In the following graph, one can see the relationship between the year-over-year change in intermediate goods index and finished goods index. When the crude goods growth falls under finish goods – it usually drags finished goods lower.
Percent Change Year-over-Year – Comparing PPI Finished Goods (blue line) to PPI Intermediate Goods (red line)
Econintersect has shown how pricing change moves from the PPI to the Consumer Price Index (CPI). This YoY change implies that the CPI, should continue to come in around 2.0 % YoY.
Comparing Year-over-Year Change Between the PPI Finished Goods Index (blue line) and the CPI-U (red line)
The price moderation of the PPI began in September 2011 when the year-over-year inflation was 7.0%.
Caveats on the Use of Producer Price Index
Econintersect has performed several tests on this series and finds it fairly representative of price changes (inflation). However, the headline rate is an average – and for an individual good or commodity, this series provides many sub-indices for specific application.
A very good primer on the Producer Price Index nuances can be found here.
Because of the nuances in determining the month-over-month index values, the year-over-year or annual change in the PPI index is preferred for comparisons.
There is moderate correlation between crude goods and finished goods. Higher crude material prices push the finished goods prices up.
include(“/home/aleta/public_html/files/ad_openx.htm”); ?>
