PPI Price Growth Moderates to 5.9% in October 2011

The Producer Price Index (finished goods) prices increased 5.9% year-over-year in October 2011 (less than the 6.9% in September) – and decreased 0.3% month-over-month.  Inflation pressure continues to moderate.

The reasons for the Y-o-Y increase are food and energy, with energy the biggest item.

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 tomorrow, should come in around 3.2% YoY. Last month (September 2011) the CPI YoY change was 3.9% (analysis here).

Overall, the yearly rate of price inflation for finished goods since April 2011 have remained between 6.6% and 7.2% – and October 2011 5.9% broke out of the bottom of the range.

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.

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 as shown on the graph below. Higher crude material prices push the finished goods prices up.

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