Inflation Moderates According to the Producer Price Index

Today’s release of the Producer Price Index — PPI — for October shows a moderation in inflation pressures. The seasonally adjusted finished goods number was -0.3% month-over-month and 6.1% year-over-year, down from last month’s 7.0%. The interim YoY high was 7.2% in July. Core PPI (ex food and energy) came was unchanged MoM and 2.8% YoY, an increase from last month’s 2.5%. Briefing.com had posted a MoM consensus forecasts of -0.2% for Headline PPI and 0.2% for Core PPI. Here are a couple of snippets from the news release:

Finished goods: In October, the decrease in finished goods prices was the result of a 1.4-percent drop in the index for finished energy goods. By contrast, prices for finished consumer foods inched up 0.1 percent. The index for finished goods less foods and energy was unchanged.

Finished energy: Prices for finished energy goods moved down 1.4 percent in October, the largest decrease since a 2.3-percent drop in June 2011. Nearly two-thirds of the October decline can be attributed to the gasoline index, which fell 2.4 percent. Lower prices for residential natural gas and home heating oil also were factors in the drop in the finished energy goods 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 but had been rising since the late spring of last year. The increase had eased over the previous four months, but September saw a strong uptick.

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 in recent months these two core metrics have been moving in tandem.

Tomorrow’s CPI will be closely watched. Will we see evidence that CPI has also moderated?

Doug Short Ph.d is the author of dshort.com.