The Producer Price Index (PPI) finished goods prices increased 4.1% year-over-year in January 2012 (less than the 4.8% in December) – and increased 0.1% month-over-month. The PPI represents inflation pressure that could move into consumer prices – and the PPI continues to moderate.
PPI finished goods also is showing moderating pressures from intermediate goods and crude goods price inflation – in fact the differential in the producer price chain has almost disappeared. The market had been expecting a 0.3% month-over-month increase in finished goods prices (compared to the 0.1% increase).
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 0.4% month-over-month.
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 (December 2011) the CPI YoY change was 3.0% (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
- January 2012 4.1% also is continuing the moderation.
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.