Producer Price Index:
Headline Inflation Falls, Core Rises
Today's release of the October Producer Price Index (PPI) for finished goods shows a 0.2% month-over-month decline, seasonally adjusted, in Headline inflation. Today's data point matched the Investing.com forecast. Core PPI rose 0.2% from last month, which was above the Investing.com forecast of a 0.1% rise.
Year-over-year Headline PPI is up only 0.30%, unchanged from last month. The YoY 1.36% Core PPI is a bit higher than last month's 1.20%.
Here is the essence of the news release on Finished Goods:
In October, the 0.2-percent decrease in the finished goods index is attributable to prices for finished energy goods, which fell 1.5 percent. By contrast, the indexes for finished consumer foods and for finished goods less foods and energy moved up 0.8 percent and 0.2 percent, respectively.
Finished energy: Prices for finished energy goods moved down 1.5 percent in October, the first decline since a 2.5-percent drop in April 2013. Nearly all of the October decrease can be traced to the index for gasoline, which fell 3.8 percent. Lower prices for diesel fuel and residential natural gas also contributed to the decline in the index for finished energy goods. (See table 2.)
Finished foods: In October, prices for finished consumer foods advanced 0.8 percent, the largest rise since a 0.9-percent jump in March 2013. Nearly sixty percent of the October increase can be traced to the index for beef and veal, which climbed 7.5 percent. Higher prices for fresh and dry vegetables also contributed to the advance in the finished consumer foods index.
Finished core: The index for finished goods less foods and energy rose 0.2 percent in October subsequent to a 0.1-percent increase in September. Leading the October advance, prices for passenger cars climbed 1.7 percent. By contrast, the index for light motor trucks edged down 0.1 percent. (On a not seasonally adjusted basis, prices for passenger cars increased 3.8 percent and the index for light motor trucks moved up 4.2 percent.) In accordance with usual practice, most new-model-year passenger cars and light motor trucks were introduced into the PPI in October (see Report on Quality Changes for 2014 Model Vehicles, at www.bls.gov/web/ppi/ppimotveh.htm). 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 move toward the last quarter of 2013, the YoY rate is about the same as in mid-2010. The more volatile Headline number is the lowest since the early months of the recovery from the Great Recession.
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, and since January of this year, Core PPI has come in below Core CPI.
Check back next month for a new update.