US PPI Final Demand (M/M) Aug: 0.7% (Est 0.6%; Prev 1.0%) - PPI Stays Hot But Decelerates M/M (Y/Y Remains At Record Levels)

US PPI Final Demand (M/M) Aug: 0.7% (est 0.6%; prev 1.0%)

US PPI Ex-Food, Energy (M/M) Aug: 0.6% (est 0.6%; prev 1.0%)

US PPI Ex-Food, Energy & Trade (M/M) Aug: 0.3% (est 0.6%; prev 0.9%)

US PPI Final Demand (Y/Y) Aug: 8.3% (est 8.2%; prev 7.8%)

US PPI Ex-Food, Energy (Y/Y) Aug: 6.7% (est 6.6%; prev 6.2%)

US PPI Ex-Food, Energy & Trade (Y/Y) Aug: 6.3% (est 6.3%; prev 6.1%)

After July CPI came in very hot well ahead of expectations (with the 7.8% y/y print the hottest going back to November 2010 (which is as far back as this survey goes for y/y data)), August final demand PPI came in hot as well with the headline y/y setting a new record at 8.2%, but looking for silver linings, also perhaps showing some deceleration as the m/m number came in at 0.7% down from July's 1.0% m/m rise (June was also a 1.0% m/m rise). The news was better if one strips out the more volatile categories of food, energy, and trade (sometimes called "core-core" PPI) which came in half of estimates at +0.3% m/m down from July's 0.9%. This still y/y came in at a new record (dating back to 2014) of 6.3% up from July's 6.1%. "Core" PPP (ex-food and energy) came in at 0.6% as expected m/m (down from July's 1.0%) as trade margins were elevated.

And as we saw last month, the strong prices run all the way down the supply chain again this month with intermediate prices (those which are incorporated into final goods (which are then sold to the end sellers)) up 1.0% m/m for both processed and unprocessed intermediate goods but in another silver lining this has decreased every month since May (which was a blazing 2.5% for processed goods and an other worldly 7.3% m/m for unprocessed). Also intermediate services were down to 0.3% m/m. As these flow downstream to final goods this is a good sign for continued lower final demand prices. Looking y/y though the picture is a headline writer's dream as intermediate processed goods were up 23% (highest since 1975) and intermediate unprocessed goods were up 50.1%(!) y/y.

As you can tell from the much more modest core number, there remain clear pockets of what's normally considered "transitory" inflation (July was energy, in August it was food which had an outsized gain of 2.9% m/m) but there remain a LOT of categories that are moving higher (and very few moving lower, but overall prices seem to be moderating). Some price leaders were trade and transportation margins, meats (particularly poultry), industrial chemicals, and margins for machinery wholesaling.

As a reminder, this report breaks prices down into two components, final and intermediate demand goods. All the headline numbers you get are final demand. I'll get into intermediate after going through those. This report is considered the "pig in the python", particularly in terms of intermediate goods which by definition are still moving through the chain to final goods. If final goods prices are up that either gets passed along to consumers (increasing CPI) or is eaten by companies (impacting margins). One bright spot is that intermediate goods prices m/m as noted above decelerated for a third month although you'll probably hear more about those y/y numbers.

Final Demand - Final demand services pulled back but goods moved higher from July levels. Specifically, services were up 0.7% m/m down from the record (dating back to 2009) 1.1% in July. 2/3 of that was due to trade services (margins for transportation and warehousing). Those increased by 2.8%. In particular health and beauty increased by 7.8%. In terms of goods, those increased by 1.0% following July's 0.6% increase. Here, as noted above, food was the biggest driver increasing 2.9% and accounting for half of the rise on the goods side. Stripping out food and energy though prices were still up 0.6% m/m but below July's energy infused 1.0% increase. After being up 2.6% in July, energy was up a more modest 0.4% m/m in June. Energy though stayed hot up another 2.6% m/m after June's 2.1% increase. As noted above ex-food, energy, and trade final demand PPI decelerated to 0.3% from July's 0.9% m/m.

Here's the detailed table on selected areas for final demand

Some more specifics from the report on final demand goods, about a quarter of the August advance in prices for final demand goods can be attributed to an 8.5-percent rise in the index for meats. Prices for residential natural gas, industrial chemicals, processed young chickens, motor vehicles, and steel mill products also moved higher. In contrast, the index for iron and steel scrap decreased 3.7 percent. Prices for diesel fuel and for natural, processed, and imitation cheese also moved lower.

Getting more granular on final demand services, over 30 percent of the August increase in prices for final demand services can be traced to a 7.8-percent rise in margins for health, beauty, and optical goods retailing. The indexes for transportation of passengers (partial), chemicals and allied products wholesaling, bundled wired telecommunications access services, machinery and equipment parts and supplies wholesaling, and traveler accommodation services also moved higher. Conversely, prices for hospital outpatient care fell 1.5 percent. The indexes for hardware, building materials, and supplies retailing and for securities brokerage, dealing, investment advice, and related services also decreased

Intermediate Demand - In terms of intermediate prices, these cooled again from May in most areas outside of food, with processed intermediate goods up 1.0% m/m (1.7% in July, 1.9% in June and 2.8% in May) and unprocessed were also up 1.0% m/m (1.4% in July, 2.6% in June and 7.3% in May) while services were up 0.3% (1.0% in July, 1.1% in June and 0.8% in May). Materials prices (steel in particular) led processed goods while natural gas led unprocessed goods and machinery margins led services.

Looking at intermediate processed goods, much of the increase in August is attributable to prices for foods, but even without food and energy, prices advanced 1.3 percent. The index for processed foods and feeds rose 2.1 percent. Conversely, prices for processed energy goods fell 0.6 percent. For the 12 months ended in August, the index for processed goods for intermediate demand climbed 23.0 percent, the largest 12-month increase since jumping 23.6 percent in February 1975.

Getting more granular, one-third of the August advance in the index for processed goods for intermediate demand can be traced to prices for industrial chemicals, which rose 4.9 percent. The indexes for steel mill products; meats; structural, architectural, and pre-engineered metal products; plastic products; and industrial electric power also moved higher. In contrast, diesel fuel prices decreased 1.6 percent. The indexes for softwood lumber and for natural, processed, and imitation cheese also declined.

In terms of unprocessed goods, the advance in August is attributable to prices for unprocessed foodstuffs and feedstuffs, which jumped 3.8 percent. Conversely, the index for unprocessed energy materials fell 0.2 percent, while prices for unprocessed nonfood materials less energy were unchanged. For the 12 months ended in August, the index for unprocessed goods for intermediate demand surged 50.1 percent.

Getting more granular, an 11.0-percent increase in the index for slaughter poultry was a major factor in the rise in prices for unprocessed goods for intermediate demand. The indexes for natural gas, corn, wheat, slaughter steers and heifers, and corrugated recyclable paper also moved higher. In contrast, crude petroleum prices decreased 10.1 percent. The indexes for iron and steel scrap and for raw milk also declined.

Here's table of selected y/y increases for intermediate goods.

In terms of services, as noted the index for services for intermediate demand rose 0.3 percent in August, the ninth consecutive increase. In August, 80 percent of the advance can be traced to margins for trade services for intermediate demand, which moved up 1.1 percent. Prices for transportation and warehousing services for intermediate demand also rose 1.1 percent. Conversely, the index for services less trade, transportation, and warehousing for intermediate demand fell 0.2 percent. For the 12 months ended in August, prices for services for intermediate demand climbed 8.6 percent.

Getting more granular, nearly 60 percent of the August increase in prices for services for intermediate demand can be attributed to margins for machinery and equipment parts and supplies wholesaling, which rose 2.8 percent. The indexes for metals, minerals, and ores wholesaling; transportation of passengers (partial); building materials, paint, and hardware wholesaling; nonresidential real estate services; and chemicals and allied products wholesaling also advanced. In contrast, prices for television advertising time sales fell 9.0 percent. The indexes for hardware, building material, and supplies retailing and for warehousing, storage, and related services also declined.

Here's table of selected y/y increases for intermediate services.

Looking at the "stages" every stage of intermediate demand decreased which is good to see but all remain pretty elevated historically. As a reminder goods go from Stage 1 to 2 to 3 to 4.

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