Producer Price Index: Headline Inflation Is Up, Core Unchanged

by: Doug Short

Friday's release of the August Producer Price Index (PPI) for finished goods rose 0.3% month-over-month, seasonally adjusted, in Headline inflation had posted a MoM consensus forecast of 0.2%. Core PPI was unchanged from last month. was looking for a 0.1% increase.

Year-over-year Headline PPI is at 1.38% (rounded to 1.4% by the BLS), down from last month's 2.1%. The 1.20% Core PPI, unchanged from last month, remains at its lowest YoY since June 2010.

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

In August, nearly two-thirds of the 0.3-percent increase in the finished goods index is attributable to a 0.8-percent rise in prices for finished energy goods. Also contributing to the advance, the index for finished consumer foods climbed 0.6 percent. Prices for finished goods less foods and energy were unchanged in August.

Finished energy: The index for finished energy goods moved up 0.8 percent in August after declining 0.2 percent in the previous month. Most of the advance can be traced to gasoline prices, which climbed 2.6 percent. Higher prices for liquefied petroleum gas and residential electric power also contributed to the rise in the index for finished energy goods. (See table 2.)

Finished foods: Prices for finished consumer foods increased 0.6 percent in August following no change in July. Leading the advance, the index for fresh and dry vegetables surged 26.9 percent.

Finished core: The index for finished goods less foods and energy was unchanged in August after nine consecutive increases. In August, higher prices for pet food and nonwood commercial furniture offset lower prices for motor vehicles. 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, as we approach mid-2013, the YoY rate is about the same as in mid-2010. The more volatile Headline number has remained in a relatively narrow range over the past 17 months.

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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. Since 2012, Core PPI has steadily trended downward, but since January of this year, Core PPI had dipped below Core CPI. Last month they were essentially at the same YoY level, but the latest PPI slipped lower in July.

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