Written by Steven Hansen
The Producer Price Index year-over-year inflation increased from 1.9 % to 2.2 %.
Analyst Opinion of Producer Prices
Energy prices were the major reason for the increase but core PPI decreased. Here is what the BLS said in part:
Final demand goods: The index for final demand goods moved up 1.0 percent in March, the largest advance since a 1.0-percent rise in May 2015. In March, over 80 percent of the broad-based increase can be traced to prices for final demand energy, which jumped 5.6 percent. The index for final demand goods less foods and energy rose 0.2 percent. Prices for final demand foods advanced 0.3 percent.
Product detail: Over 60 percent of the increase in the index for final demand goods is attributable to a 16.0- percent jump in gasoline prices. The indexes for diesel fuel, fresh and dry vegetables, cigarettes, beverages and beverage materials, and residential electric power also moved higher. In contrast, prices for pork declined 8.7 percent. The indexes for light motor trucks and liquefied petroleum gas also decreased.
Final demand services: Prices for final demand services rose 0.3 percent in March after no change in February. The increase is attributable to the index for final demand trade services, which advanced 1.1 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) Conversely, prices for final demand transportation and warehousing services declined 0.8 percent. The index for final demand less trade, transportation, and warehousing was unchanged.
Product detail: Nearly a third of the increase in the index for final demand services can be traced to margins for apparel, jewelry, footwear, and accessories retailing, which rose 4.2 percent. The indexes for machinery, equipment, parts, and supplies wholesaling; deposit services (partial); food and alcohol retailing; health, beauty, and optical goods retailing; and portfolio management also advanced. In contrast, prices for longdistance motor carrying fell 1.2 percent. The indexes for fuels and lubricants retailing and for residential real estate loans (partial) also declined.
The PPI represents inflation pressure (or lack thereof) that migrates into consumer price.
The market had been expecting (from Econoday):
| Consensus Range | Consensus | Actual | |
| PPI-Final Demand (PPI-FD) – M/M change | 0.2 % to 0.5 % | +0.4 % | +0.6 % |
| PPI-FD – Y/Y change | 1.9 % to 2.1 % | +1.9 % | 2.2 % |
| PPI-FD less food & energy (M/M change -core PPI) | 0.1 % to 0.3 % | +0.2 % | +0.3 % |
| PPI-FD less food & energy – Y/Y change | 2.0 % to 2.7 % | +2.5 % | 2.4 % |
| PPI-FD less food, energy & trade services – M/M change | 0.2 % to 0.2 % | +0.2 % | +0.0 % |
| PPI-FD less food, energy & trade services – Y/Y change | 2.0 % |
The producer price inflation breakdown:
| category | month-over-month change | year-over-year change |
| final demand goods | +1.0 % | |
| final demand services | +0.3 % | |
| total final demand | +0.6 % | +2.2 % |
| processed goods for intermediate demand | +0.4-8 % | +1.3 % |
| unprocessed goods for intermediate demand | -2.3 % | -3.5 % |
| services for intermediate demand | +0.4 % | +2.6 % |
z ppi1.png
In the following graph, one can see the relationship between the year-over-year change in the 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).
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%. Currently, inflation is on an increasing trend line.
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 a 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 a 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”); ?>
