Producer Price Index: Core Exceeds Headline Inflation

Friday's release of the April Producer Price Index (PPI) for finished goods shows a drop in headline inflation but a jump in core inflation. The seasonally adjusted finished goods number declined 0.2% month-over-month and a moderate 1.9% year-over-year, down from last month's adjusted 0.0% MoM and 2.8% YoY. Core PPI (ex food and energy) rose 0.2% MoM, down from last month's 0.3%. The YoY 2.8% was slightly lower than last month's 29%. Briefing.com had posted a MoM consensus forecast of 0.0% for Headline PPI and 0.2% for Core PPI.
 
The April numbers show a deeper crossover of the YoY rates for Headline and Core, something that last occurred in late 2008.
 
Here is a snippet from the news release:
 
Finished energy: The index for finished energy goods moved down 1.4 percent in April, the largest decline since a 1.5-percent decrease in October 2011. About half of the April drop can be traced to gasoline prices, which fell 1.7 percent. Decreases in the indexes for residential natural gas and liquefied petroleum gas also contributed to lower prices for finished energy goods. (See table 2.)

Finished core: Prices for finished goods less foods and energy moved up 0.2 percent in April, the sixth straight increase. Nearly a quarter of the April rise is attributable to a 0.4-percent advance in the index for pharmaceutical preparations. Higher prices for civilian aircraft also were a factor in the increase in the finished core index.

Finished foods: The index for finished consumer foods rose 0.2 percent in April, the same as in March. The April advance was led by prices for beef and veal, which climbed 4.3 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, Core PPI declined significantly during 2009 and increased modestly in 2010. The rate of increase moved higher in 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. But over the past year these two core metrics have genrally moved in tandem.

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