Producer Price Index: Headline Below Forecast, Core Above

by: Doug Short

Today's release of the January Producer Price Index (PPI) for finished goods shows a month-over-month increase of 0.2%, seasonally adjusted, in Headline inflation. Core PPI also rose 0.2%. had posted a MoM consensus forecast of 0.3% for Headline and 0.1% for Core PPI.

Year-over-year Headline PPI is up 1.4% and Core PPI is up 1.8%.

Here is a snippet from the news release on Finished Goods:

In January, over three quarters of the rise in finished goods prices can be attributed to the index for finished consumer foods, which advanced 0.7 percent. Also contributing to the increase in finished goods prices, the index for finished goods less foods and energy rose 0.2 percent. By contrast, prices for finished energy goods fell 0.4 percent.

Finished foods: The index for finished consumer foods rose 0.7 percent in January after a 0.8- percent decline in December. This advance was led by a 39.0-percent jump in prices for fresh and dry vegetables. Increases in the indexes for soft drinks and for candy and nuts also contributed to higher prices for finished consumer foods. (See table 2.)

Finished core: Prices for finished goods less foods and energy moved up 0.2 percent in January, the third straight increase. Most of the January advance can be traced to a 2.5-percent rise in the index for pharmaceutical preparations. Higher prices for communication and related equipment also contributed to the increase in the finished core index.

Finished energy: The index for finished energy goods moved down 0.4 percent in January, the fourth straight decrease. The January decline is mostly attributable to prices for gasoline, which fell 2.1 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 YoY trend in Core PPI (the blue line) declined significantly during 2009 and stabilized in 2010, increase in 2011 and then began falling in 2012. Now, in early 2013, the YoY rate is about the same as in early 2011.

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.

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