Producer Price Index: No Change In Headline Inflation, Core Rises 0.1%

Today's release of the July Producer Price Index (PPI) for finished goods shows no change month-over-month, seasonally adjusted, in Headline inflation Investing.com had posted a MoM consensus forecast of 0.3%. Core PPI rose 0.1% (which the BLS rounded up from 0.05%). Investing.com was looking for a 0.2% increase in Core PPI.

Year-over-year Headline PPI is at 2.12% (rounded to 2.1% by the BLS), down from last month's 2.5%, which was the highest since March 2012. In contrast, Core PPI at 1.20% is at its lowest YoY since June 2010.

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

The index for finished goods was unchanged in July as a 0.1-percent rise in prices for finished goods less foods and energy was offset by a 0.2-percent decrease in the index for finished energy goods. Prices for finished consumer foods were unchanged.

Finished core: The index for finished goods less foods and energy edged up 0.1 percent in July, the ninth consecutive increase. The July advance was led by prices for pharmaceutical preparations, which rose 1.0 percent. Increases in the indexes for light motor trucks and for communication and related equipment also contributed to higher finished core prices. (See table 2.)

Finished energy: Prices for finished energy goods moved down 0.2 percent in July after climbing 2.9 percent a month earlier. This decline is mostly attributable to a 3.9-percent decrease in the index for residential natural gas. Lower prices for gasoline and finished lubricants also were factors in the decline in the index for finished energy goods.

Finished foods: Prices for finished consumer foods were unchanged in July following a 0.2- percent advance in June. In July, a 5.6-percent increase in the index for pork offset a 10.6- percent decline in prices for fresh vegetables, except potatoes. 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 mid-2010. The more volatile Headline number has remained in a relatively narrow range over the past 17 months.

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. Last month they were essentially at the same YoY level, but the latest PPI slipped lower in July.

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