Producer Price Index: Headline Inflation Rises 0.5%, Core Rises 0.1%

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

The May increase in Headline PPI after two consecutive monthly declines followed two months of increases, which had followed three months of declines. Year-over-year Headline PPI is at 1.8%, its highest since October, and Core PPI is at 1.6%, its lowest YoY since January 2011.

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

In May, over sixty percent of the broad-based rise in finished goods prices is attributable to the index for finished energy goods, which advanced 1.3 percent. Also contributing to the increase in finished goods prices, the index for finished consumer foods rose 0.6 percent and prices for finished goods less foods and energy moved up 0.1 percent.

Finished energy: The index for finished energy goods moved up 1.3 percent in May following two consecutive declines. A 1.5-percent rise in the index for gasoline accounted for forty percent of the May increase. Higher prices for residential natural gas and residential electric power also were factors in the advance in the finished energy goods index. (See table 2.)

Finished foods: The index for finished consumer foods climbed 0.6 percent in May after falling 0.8 percent in the prior month. Accounting for over sixty percent of the increase, prices for eggs for fresh use surged 41.6 percent. A rise in the index for natural, processed, and imitation cheese also contributed to the advance in the finished consumer foods index.

Finished core: In May, prices for finished goods less foods and energy moved up 0.1 percent, the seventh consecutive increase. Nearly two-thirds of the May advance can be traced to prices for light motor trucks, which rose 0.4 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, as we approach mid-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.

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