Producer Price Index: Headline Inflation Rises 0.8%, Core Rises 0.2%

Friday's release of the June Producer Price Index (PPI) for finished goods shows a month-over-month increase of 0.8%, seasonally adjusted, in Headline inflation. Core PPI rose 0.2%. Investing.com had posted a MoM consensus forecast of 0.5% for Headline PPI and 0.1% for Core PPI.

Year-over-year Headline PPI is at 2.5%, its highest since March 2012. In contrast, Core PPI at 1.64% (which the BLS rounds to 1.6%), is fractionally below last month's 1.65% and at its lowest YoY since January 2011.

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

In June, most of the broad-based rise in finished goods prices can be traced to the index for finished energy goods, which increased 2.9 percent. Also contributing to the advance in finished goods prices, the indexes for finished goods less foods and energy and for finished consumer foods both moved up 0.2 percent.

Finished energy: Prices for finished energy goods climbed 2.9 percent in June, the largest rise since a 3.2-percent increase in February 2013. The June advance is mostly attributable to a 7.2- percent jump in the index for gasoline. Higher prices for home heating oil and diesel fuel also contributed to the rise in the finished energy goods index. (See table 2.)

Finished core: The index for finished goods less foods and energy moved up 0.2 percent in June, the eighth consecutive advance. A major contributor to the June increase were prices for passenger cars, which rose 0.8 percent. An advance in the index for light motor trucks also was a factor in higher finished core prices.

Finished foods: Prices for finished consumer foods advanced 0.2 percent in June following a 0.6-percent increase in May. The June rise was led by the index for meats, which moved up 4.2 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 had dipped below Core CPI. Now they are close to the same YoY level.

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