Producer Price Index Increased in July 2011 – Belies Deflationary Cycle

Although there are several signs of a renewed deflationary cycle, the Producer Price Index (PPI) finished goods index for July 2011 is not one of them rising to an all time high. Year-over-year price inflation was just short of a post recession high at 7.2%, while month-over-month increase was a rather moderate 0.2%.

The increase is due to a resurgence in fuel prices (crude down, but processed fuels up) and food.  Consumer goods were flat.  There are indications of future moderation of finished goods prices as crude goods (foods and oils) have moderated this month.

There is moderate correlation between crude goods and finished goods as shown on the graph below.

Econintersect has shown how the pricing changes moves from the PPI to the Consumer Price Index (CPI).  This YoY change implies that the CPI – which will be released later this week, should come in a little over 3% YoY.  Last month the CPI YoY change was 3.6% (analysis here) – and Econintersect also predicted a little over 3% YoY growth.

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