Producer Price Index: More Evidence of Inflation

by: Doug Short

Today's release of the Producer Price Index (PPI) for May again reinforces the pattern of higher inflation. The year-over-year unadjusted producer price increase was the largest since September 2008:

The Producer Price Index for finished goods rose 0.2 percent in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This advance followed increases of 0.8 percent in April and 0.7 percent in March. At the earlier stages of processing, prices received by manufacturers of intermediate goods climbed 0.9 percent in May, and the crude goods index declined 4.1 percent. On an unadjusted basis, prices for finished goods moved up 7.3 percent for the 12 months ended May 2011, the largest year-over-year gain since an 8.8-percent advance in September 2008. March 2010. More...

Here is an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted (hence the 7.0% year over year (YoY) change versus the 7.7% unadjusted mentioned in the press release). As we can see, Core PPI declined significantly during 2009 but has been rising modestly since the late spring of last year.

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(Click charts to expand)

As the next chart shows, Core PPI is more volatile than Core CPI. 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. But in recent months that pattern has begun to change.

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Tomorrow's CPI will be very closely watched. Will we see additional evidence that the much publicized evidence of worldwide inflation is coming home to roost in the U.S. household budget?