Producer Price Index: Headline and Core Lower Than Forecast

Yesterday's release of the September Producer Price Index (PPI) for finished goods shows a month-over-month decline of 0.2%, seasonally adjusted, in both Headline and Core inflation. Briefing.com had posted a MoM consensus forecast of 0.1% for both Headline and Core PPI.

Year-over-year Headline PPI is up 2.3% and Core PPI is up 2.1%.

Here is a snippet from the news release:

In October, the decrease in the finished goods index is attributable to prices for finished energy goods and the index for finished goods less foods and energy, which declined 0.5 percent and 0.2 percent, respectively. By contrast, prices for finished consumer foods advanced 0.4 percent.

Finished energy: The index for finished energy goods moved down 0.5 percent in October after increasing 4.7 percent a month earlier. A 2.2-percent drop in gasoline prices accounted for most of this decrease. Declines in the indexes for home heating oil and liquefied petroleum gas also contributed to lower finished energy goods prices. (See table 2.)

Finished core: The index for finished goods less foods and energy moved down 0.2 percent in October, the first decline since a 0.1-percent decrease in November 2010. Lower prices for light motor trucks and passenger cars led the October decline, falling 1.5 percent and 1.6 percent, respectively. (On a not seasonally adjusted basis, the index for light motor trucks rose 3.9 percent and passenger car prices moved up 1.4 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 2013 Model Vehicles, at www.bls.gov/web/ppi/ppimotveh.htm).

Finished foods: In October, prices for finished consumer foods advanced 0.4 percent, the fifth consecutive increase. Leading the October rise, the index for dairy products climbed 3.0 percent. 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.

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 faster decline in Core PPI.

Today will bring us the more widely followed Consumer Price Index (CPI) inflation indicator.