The December Producer Price Index: Lower Energy Prices Lead The Way

Lower prices for energy seen in December were sufficient to bring the overall producer price index for finished goods, PPI, down 0.1%, according to the monthly survey released by the Bureau of Labor Statistics on Wednesday. This follows a 0.3% rise in November and a 0.3% drop in October. Including December, this overall index rose nine times in 2011 and fell three times, with the unadjusted index for the year increasing by 4.8%.

In December the core PPI (less energy and food) rose 0.3%. The index for finished energy (NYSE:XLE) goods, and for finished consumer foods each fell 0.8%, the index for food in the winter being more tied to transport costs. A drop in gasoline prices by 2.3% was much responsible for this decrease.

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The December PPI for intermediate materials, supplies and components decreased 0.5%, after rising 0.2% in November, and saw a total change for the year of +6.1%. The monthly index for crude materials for further processing fell 1.1% after rising 3.8% in Novemmber. As it was for finished goods, the December decline for crude goods was mainly due to the fall in foods and feeds (2.6%). The crude core index, less food and energy, remained constant.

Demand for crude and intermediate goods is defined as derived demand, i.e., this demand is derived from the consumer demand for finished goods made from the unfinished goods. The total PPI change from 12 months ago in these two categories were +6.4% and +6.1% respectively. So long as the price changes were not solely from increased production costs, these numbers can be interpreted to indicate increased consumer demand for those finished goods during 2011.

Overall, the December figures show a slight uptick for producer prices, less those associated with energy. Rebounding economies typically produce mild increases, and so long as they do not ignite worries of inflation, should not be of significant concern.

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To contact the reporter on this story: Mark Lawson at staff.writers@wallstcheatsheet.com

To contact the editor responsible for this story: Damien Hoffman at editors@wallstcheatsheet.com