December Producer Price Index: Core Final Demand Up 0.1% MoM

Today's release of the December Producer Price Index (PPI) for Final Demand was up 0.1% month-over-month seasonally adjusted, up from no change last month. It is at 1.3% year-over-year, up from 1.1% last month, on a non-seasonally adjusted basis. Core Final Demand (less food and energy) came in at 0.1% MoM, up from -0.2% the previous month and is up 1.1% YoY NSA. Investing.com MoM consensus forecasts were for 0.2% headline and 0.2% core.

Here is the summary of the news release on Final Demand:

The Producer Price Index for final demand edged up 0.1 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in November and rose 0.4 percent in October. (See table A.) On an unadjusted basis, the final demand index moved up 1.3 percent in 2019, after a 2.6-percent advance in 2018.

The December increase in the final demand index was the result of a 0.3-percent rise in prices for final demand goods. The index for final demand services was unchanged.

Prices for final demand less foods, energy, and trade services inched up 0.1 percent in December following no change in November. In 2019, the index for final demand less foods, energy, and trade services climbed 1.5 percent after advancing 2.8 percent in 2018. More…

Finished Goods: Headline and Core

The BLS shifted its focus to its new "Final Demand" series in 2014, a shift we support. However, the data for these series are only constructed back to November 2009 for Headline and April 2010 for Core. Since our focus is on longer-term trends, we continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates.

As this (older) overlay illustrates, the Final Demand and Finished Goods indexes are highly correlated.

FRED® Graphs ©Federal Reserve Bank of St. Louis. All rights reserved.

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As the next chart shows, the Core Producer Price Index is far more volatile than the Core Consumer Price Index. For example, during the last recession producers were unable to pass cost increases to the consumer.

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