Producer Price Index: Headline Lower Than Forecast, Core At Forecast

by: Doug Short

Today's release of the September Producer Price Index (PPI) for finished goods shows a month-over-month decline of 0.8%, seasonally adjusted, in Headline inflation. Core PPI rose 0.1%. had posted a MoM consensus forecast of -0.5% for Headline and 0.1% for Core PPI.

Year-over-year Headline PPI is up 1.4% and Core PPI is up 2.2%.

Here is a snippet from the news release:

The November decrease in the finished goods index is attributable to prices for finished energy goods, which fell 4.6 percent. By contrast, the indexes for finished consumer foods and for finished goods less foods and energy advanced 1.3 percent and 0.1 percent, respectively.

Finished energy: The index for finished energy goods fell 4.6 percent in November, the largest decline since a 4.6-percent decrease in March 2009. Accounting for over ninety percent of the November decline, gasoline prices dropped 10.1 percent. Decreases in the indexes for diesel fuel and home heating oil also contributed to lower finished energy goods prices. (See table 2.)

Finished foods: Prices for finished consumer foods rose 1.3 percent in November, the sixth consecutive advance. About forty percent of the November increase can be attributed to the index for beef and veal, which moved up 8.2 percent. Higher prices for fresh and dry vegetables also factored in the advance in the finished consumer foods index.

Finished core: The index for finished goods less foods and energy edged up 0.1 percent in November after declining 0.2 percent a month earlier. Leading this advance, the index for light motor trucks rose 0.2 percent. More...

Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. As we can see, the year-over-year trend in Core PPI declined significantly during 2009 and increased modestly in 2010 and more rapidly in 2011. This year the year-over-year Core PPI trend had been one of gradual decline.

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As the next chart shows, the Core Producer Price Index is more volatile than the Core Consumer Price Index. For example, during the last recession producers were unable to pass cost increases to the consumer. Likewise in 2010 the Core PPI generally rose while Core CPI generally fell. Last year these two core metrics generally moved in tandem, but in 2012 the spread has narrowed, largely because of the faster decline in Core PPI.

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Tomorrow, Dec. 14, will bring us the more widely followed Consumer Price Index (CPI) inflation indicator.