Written by Steven Hansen
The Producer Price Index (PPI) year-over-year inflation moved from -0.2 % to +0.4 %.
Analyst Opinion of Producer Prices
Year-over-year inflation pressures remain soft as this index is barely in expansion.
Here is what the BLS said in part:
The Producer Price Index for final demand advanced 0.4 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.3 percent in August and 0.6 percent in July. (See table A). On an unadjusted basis, the final demand index increased 0.4 percent for the 12 months ended in September, the first advance since moving up 0.3 percent for the 12 months ended in March. In September, nearly two-thirds of the rise in prices for final demand is attributable to a 0.4-percent increase in the index for final demand services. Prices for final demand goods also moved up 0.4 percent. The index for final demand less foods, energy, and trade services advanced 0.4 percent in September, the largest increase since rising 0.4 percent in April 2019. For the 12 months ended in September, prices for final demand less foods, energy, and trade services moved up 0.7 percent, the largest advance since increasing 1.0 percent for the 12 months ended in March.
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 | 0.1 % to 0.3 % | +0.2 % | +0.4 % |
| PPI-FD – Y/Y change | -0.3 % to 0.4 % | +0.2 % | +0.4 % |
| PPI-FD less food & energy (M/M change -core PPI) | 0.1 % to 0.3 % | +0.2 % | +0.4 % |
| PPI-FD less food & energy – Y/Y change | 0.2 % to 1.0 % | +0.8 % | +1.2 % |
| PPI-FD less food, energy & trade services – M/M change | 0.1 % to 0.3 % | +0.2 % | +0.4 % |
| PPI-FD less food, energy & trade services – Y/Y change | +0.7 % |
The producer price inflation breakdown:
| category | month-over-month change | year-over-year change |
| final demand goods | +0.4 % | |
| final demand services | +0.4 % | |
| total final demand | +0.4 % | +0.4 % |
| processed goods for intermediate demand | +1.0 % | -1.5 % |
| unprocessed goods for intermediate demand | +3.9 % | -5.4 % |
| services for intermediate demand | +1.0 % | +0.3 % |
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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