July Producer Price Index: Core Final Demand Down 0.1 MoM

Today's release of the July Producer Price Index (PPI) for Final Demand came in at 0.2% month-over-month seasonally adjusted, up from 0.1% last month. It is at 1.7% year-over-year, unchanged from last month, on a non-seasonally adjusted basis. Core Final Demand (less food and energy) came in at -0.1% MoM, down from 0.3% the previous month and is unchanged YoY NSA at 2.1%. 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 advanced 0.2 percent in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved up 0.1 percent in both June and May. (See table A.) On an unadjusted basis, the final demand index rose 1.7 
percent for the 12 months ended in July.

In July, the rise in final demand prices was led by a 0.4-percent increase in the index for final demand goods. Prices for final demand construction rose 0.6 percent. In contrast, the index for final demand services declined 0.1 percent.

The index for final demand less foods, energy, and trade services fell 0.1 percent in July, the first decrease since declining 0.1 percent in October 2015. For the 12 months ended in July, prices for final demand less foods, energy, and trade services moved up 1.7 percent. 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.

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.