Producer Price Index: Headline Inflation Continues To Fall

Today's release of the May Producer Price Index (PPI) for finished goods shows the second month of decline in headline inflation while core inflation rose month-over-month. The seasonally adjusted finished goods number declined a full one percent from April and is now showing a fractional 0.8% year-over-year change, down from last month's 1.9% YoY. Core PPI (ex food and energy) rose 0.2% MoM, matching April's increase. The YoY 2.8% was unchanged from the previous month. Briefing.com had posted a MoM consensus forecast of -0.7% for Headline PPI and 0.2% for Core PPI.
 
The May 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 fell 4.3 percent in May, the largest decline since a 4.6-percent decrease in March 2009. An 8.9-percent drop in the gasoline index accounted for over eighty percent of the May decline. Lower prices for liquefied petroleum gas and residential natural gas also contributed to the decrease in the finished energy goods index. (See table 2.)

Finished foods: Prices for finished consumer foods moved down 0.6 percent in May, the largest decline since a 0.7-percent decrease in December 2011. Over sixty percent of the May decline can be traced to the meats index, which decreased 2.2 percent. Lower prices for fresh fruits and melons also were a factor in the decline in the finished consumer foods index.

Finished core: The index for finished goods less foods and energy advanced 0.2 percent in May, the third consecutive increase. Over a quarter of the May rise can be attributed to the pharmaceutical preparations index, which climbed 0.7 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. Last year these two core metrics generally moved in tandem, but the last few months have seen them move in different directions.

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