Producer Price Index: 3rd Month Of Headline Increase

by: Doug Short

Thursday's release of the February Producer Price Index (PPI) for finished goods shows a month-over-month increase of 0.7%, seasonally adjusted, in Headline inflation. Core PPI rose 0.2%. had posted a MoM consensus forecast of 0.6% for Headline and 0.2% for Core PPI.

MoM Headline PPI has risen in 2013: -0.3% in January,0.2% in February and 0.7% in February. Year-over-year Headline PPI is up 1.8% and Core PPI is up 1.7%.

Here is the essence of the news release on Finished Goods:

In February, the advance in finished goods prices was led by the index for finished energy goods, which rose 3.0 percent. Also contributing to the increase in finished goods prices, the index for finished goods less foods and energy moved up 0.2 percent. By contrast, prices for finished consumer foods fell 0.5 percent.

Finished energy: The index for finished energy goods climbed 3.0 percent in February after four straight decreases. Gasoline prices accounted for most of this advance, jumping 7.2 percent. The indexes for home heating oil and diesel fuel also were factors in the increase in finished energy goods prices. (See table 2.)

Finished core: The index for finished goods less foods and energy rose 0.2 percent, the fourth consecutive advance. About twenty percent of the February increase can be traced to prices for pharmaceutical preparations, which moved up 0.2 percent. An advance in the index for plastic products also contributed to higher prices for finished goods less foods and energy.

Finished foods: Prices for finished consumer foods declined 0.5 percent in February subsequent to moving up 0.7 percent in the previous month. The index for fresh and dry vegetables accounted for most of the decrease, falling 18.0 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.

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