Producer Price Index: Again Hotter Than Forecast

Includes: DIA, IWM, QQQ, SPY
by: Doug Short

Today's release of the April Producer Price Index (PPI) for Final Demand rose 0.6% month-over-month seasonally adjusted. Today's data point was higher than the 0.2% forecast. Core Final Demand also rose 0.6% from last month, topping the forecast of 0.2%.

The unadjusted year-over-year change in Final Demand is up 2.1%, the biggest YoY jump in in 25 months.

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

The Producer Price Index for final demand advanced 0.6 percent in April, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This increase followed a rise of 0.5 percent in March and a decline of 0.1 percent in February. On an unadjusted basis, the index for final demand moved up 2.1 percent for the 12 months ended in April, the largest 12-month advance since a 2.4-percent increase in March 2012....

In April, the 0.6-percent increase in final demand prices can be traced to the indexes for final demand services and final demand goods, both of which also advanced 0.6 percent. More…

Finished Goods: Headline and Core

The BLS shifted its focus to its new "Final Demand" series earlier this year. I fully support this shift. However, the data for these series are only constructed back to November 2009 for Headline and April 2010 for Core. Since my focus is on longer term trends, I continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates.

The April Headline Finished Goods rose 0.7% MoM and 3.08% YoY, the largest YoY jump in 26 months. Core Finished Goods rose 0.3% MoM and is up 1.84% YoY.

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, increased in 2011 and then eased during 2012 and most of 2013. This rise in recent months still leaves this indicator below the common 2% benchmark.

As the next chart shows, the Core Producer Price Index is far 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 steadily trended downward but has bounced in recent months. Since January of 2013, Core PPI has been below 2%, but it has been on the rise since its interim 1.15% low in August of last year.

Check back next month for a new update.