Producer Price Index: Biggest Headline Inflation Jump Since June 2009

Today's release of the August Producer Price Index (PPI) for finished goods shows a month-over-month increase of 1.7% in headline inflation, which is the biggest monthly jump since June of 2009. Core inflation rose a more modest 0.2%. Briefing.com had posted a MoM consensus forecast of 1.2% for Headline and 0.2% for Core PPI. The price of energy was the main culprit, up 6.4%, the largest increase in three years.

Year-over-year Headline PPI is up 2.0% and Core PPI is up 2.6%.

Here is a snippet from the news release:

In August, over eighty percent of the broad-based rise in finished goods prices is attributable to the index for finished energy goods, which jumped 6.4 percent. Also contributing to the increase in finished goods prices, the index for finished consumer foods climbed 0.9 percent, and prices for finished goods less foods and energy advanced 0.2 percent.

Finished energy: The index for finished energy goods moved up 6.4 percent in August, the largest advance since a 6.7-percent jump in August 2009. Most of the rise in August 2012 can be traced to a 13.6-percent surge in gasoline prices. The indexes for home heating oil and liquefied petroleum gas also were factors in the advance in prices for finished energy goods. (See table 2.)

Finished foods: The index for finished consumer foods climbed 0.9 percent in August, the largest rise since a 1.0-percent increase in November 2011. About one-third of the August advance is attributable to prices for dairy products, which jumped 3.0 percent. Higher prices for eggs for fresh use also were a major factor in the rise in the finished consumer foods index.

Finished core: The index for finished goods less foods and energy moved up 0.2 percent in August after increasing 0.4 percent in July. Over thirty percent of the August rise can be traced to a 0.5-percent advance in prices for pharmaceutical preparations. 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 declined significantly during 2009 and increased modestly in 2010 and more rapidly in 2011. This year the YoY Core PPI trend had been one of gradual decline until the recent dramatic uptick.

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. Last year these two core metrics generally moved in tandem, but in 2012 the spread has narrowed, largely because of the decline in Core PPI.

Tomorrow will bring us the more widely followed CPI inflation indicator.