Written by Steven Hansen
The Producer Price Index (PPI) year-over-year inflation unchanged at -0.8 %,
Analyst Opinion of Producer Prices
Year-over-year inflation pressures remain soft as this index remains in contraction. This may be the beginning of a deflationary cycle – we will know only in hindsight.
Here is what the BLS said in part:
The Producer Price Index for final demand fell 0.2 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This decrease followed a 0.4-percent increase in May and a 1.3- percent decline in April. On an unadjusted basis, the final demand index moved down 0.8 percent for the 12 months ended in June. In June, the decrease in the final demand index is attributable to a 0.3-percent decline in prices for final demand services. In contrast, the index for final demand goods rose 0.2 percent. Prices for final demand less foods, energy, and trade services advanced 0.3 percent in June, the largest increase since a 0.3-percent rise in January. For the 12 months en
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 % | -0.2 % |
PPI-FD – Y/Y change | -1.2 % to 0.1 % | -0.5 % | -0.8 % |
PPI-FD less food & energy (M/M change -core PPI) | 0.0 % to 0.2 % | +0.1 % | +0.1 % |
PPI-FD less food & energy – Y/Y change | 0.4 % to 0.5 % | +0.4 % | +0.1 % |
PPI-FD less food, energy & trade services – M/M change | +0.3 % | ||
PPI-FD less food, energy & trade services – Y/Y change | -0.1 % |
The producer price inflation breakdown:
category | month-over-month change | year-over-year change |
final demand goods | +0.2 % | |
final demand services | -0.3 % | |
total final demand | -0.2 % | -0.8 % |
processed goods for intermediate demand | +0.9 % | -5.0 % |
unprocessed goods for intermediate demand | +3.1 % | -14.5 % |
services for intermediate demand | -+0.2 % | -1.5 % |
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%.
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.
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