Producer Price Index: Headline Inflation Drops 0.7%, Core Rises 0.1%

Yesterday's release of the April Producer Price Index (PPI) for finished goods shows a month-over-month decrease of 0.6%, seasonally adjusted, in Headline inflation. Core PPI rose 0.1%. Briefing.com had posted a MoM consensus forecast of -0.5% for Headline and 0.1% for Core PPI.

The April decline in Headline PPI is the second monthly decline following two months of increases, which had followed three months of declines. Year-over-year Headline PPI is at 0.7%, its lowest level in nine months, and Core PPI is at 1.7%, its lowest since YoY since January 2011.

Here is the essence of the news release on Finished Goods:

In April, over eighty percent of the decrease in the finished goods index can be traced to a 2.5- percent drop in prices for finished energy goods. Also contributing to the decline in finished goods prices, the index for finished consumer foods fell 0.8 percent. By contrast, prices for finished goods less foods and energy advanced 0.1 percent in April.

Finished energy: The index for finished energy goods moved down 2.5 percent in April after falling 3.4 percent in March. Over ninety percent of the April decrease is attributable to gasoline prices, which dropped 6.0 percent. Lower prices for home heating oil and residential electric power also were factors in the decline in the index for finished energy goods. (See table 2.)

Finished foods: Prices for finished consumer foods moved down 0.8 percent in April, the largest decrease since a 1.0-percent drop in May 2011. Half of the April decline can be traced to the index for fresh and dry vegetables, which fell 10.6 percent. Lower meat prices also were a major factor in the decrease in the index for finished consumer foods.

Finished core: The index for finished goods less foods and energy inched up 0.1 percent in April following increases of 0.2 percent in each of the previous four months. Leading the April rise, prices for pharmaceutical preparations climbed 0.6 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 (the blue line) declined significantly during 2009 and stabilized in 2010, increase in 2011 and then began falling in 2012. Now, in early 2013, the YoY rate is about the same as in early 2011.


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, but since January of this year, Core PPI has dipped below Core CPI.

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