Producer Price Index: Energy Prices Boost Headline Inflation

Today's release of the Producer Price Index (PPI) for February shows the largest month-over-month increase since September. The seasonally adjusted finished goods number was up 0.4% MoM and 3.4% year-over-year, the latter being a decline from last month's 4.1%. The interim YoY high was 7.2% in September of last year. Core PPI (ex food and energy) moderated a bit at 0.2% MoM, down from last month's 0.4%. The YoY 2.9% was fractionally lower than last month's 3.0%. Briefing.com had posted a MoM consensus forecast of 0.5% for Headline PPI and 0.2% for Core PPI. Here are a couple of snippets from the news release: Finished energy: Prices for finished energy goods advanced 1.3 percent in February after declining in each of the previous two months. A 4.3-percent jump in the gasoline index accounted for most of the increase. Advances in the indexes for residential electric power and home heating oil also contributed to the rise in finished energy goods prices. (See table 2.)

Finished core: The index for finished goods less foods and energy moved up 0.2 percent in February, the third straight monthly increase. A third of the February rise can be traced to a 0.6-percent advance in prices for pharmaceutical preparations. An increase in the index for civilian aircraft also contributed to higher finished core prices.

Finished foods: In February, the finished consumer foods index inched down 0.1 percent, the third consecutive monthly decrease. A 2.8-percent drop in prices for dairy products led the February decline in the finished consumer foods index   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 been moving in tandem.


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