The Producer Price Index (PPI) finished goods prices increased 4.8% year-over-year in December 2011 (less than the 5.7% in November) – and decreased 0.1% month-over-month. The PPI represents inflation pressure above consumer prices – and the PPI continues to moderate.
PPI finished goods also is showing moderating pressures from intermediate goods and crude goods price inflation. The market was expecting a 0.1% month-over-month increase in finished goods prices (compared to the 0.1% decrease experienced).
The reasons for the month-over-month decrease in finished goods was due to a contraction in energy and food. The core PPI (excluding food and energy) rose 0.3% month-over-month. That may well change in January as energy prices have been firming this month with the tension over Iran.
Econintersect has shown how pricing change 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 2.5% YoY. Last month (November 2011) the CPI YoY change was 3.4% (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,
- November 2011 5.7% year-over-year increase, and
- December 2011 4.8% is continuing this less good trend.
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.