The Producer Price Index (PPI) year-over-year inflation declined from 1.8 % to 1.7 %,
Analyst Opinion of Producer Prices
Despite being in trade wars, the PPI has declined. Trade wars have both positive and negative impacts on prices.
Here is what the BLS said in part:
The Producer Price Index for final demand advanced 0.1 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices moved up 0.1 percent in May and 0.2 percent in April. (See table A.) On an unadjusted basis, the final demand index rose 1.7 percent for the 12 months ended in June, the lowest rate of increase since advancing 1.7 percent in January 2017. In June, the rise in final demand prices is attributable to a 0.4-percent increase in the index for final demand services. Conversely, prices for final demand goods fell 0.4 percent. The index for final demand less foods, energy, and trade services was unchanged in June following advances of 0.4 percent in both April and May. For the 12 months ended in June, prices for final demand less foods, energy, and trade services climbed 2.1 percent.
The PPI represents inflation pressure (or lack thereof) that migrates into consumer price.
The market had been expecting (from Econoday):
| Consensus Range | Consensus | Actual | |
| PPI-Final Demand (PPI-FD) - M/M change | -0.1 % to 0.3 % | +0.1 % | +0.1 % |
| PPI-FD - Y/Y change | 1.3 % to 2.0 % | +1.7 % | +1.7 % |
| PPI-FD less food & energy (M/M change -core PPI) | 0.1 % to 0.3 % | +0.2 % | +0.3 % |
| PPI-FD less food & energy - Y/Y change | 2.1 % to 2.4 % | +2.2 % | 2.3 % |
| PPI-FD less food, energy & trade services - M/M change | 0.2 % to 0.3 % | +0.2 % | +0.0 % |
| PPI-FD less food, energy & trade services - Y/Y change | 2.2 % to 2.4 % | +2.3 % | 2.1 % |
The producer price inflation breakdown:
| category | month-over-month change | year-over-year change |
| final demand goods | -0.4 % | |
| final demand services | +0.4 % | |
| total final demand | +0.1 % | +1.7 % |
| processed goods for intermediate demand | -1.1 % | -2.1 % |
| unprocessed goods for intermediate demand | -3.3 % | -11.0 % |
| services for intermediate demand | +0.2 % | +2.6 % |
In the following graph, one can see the relationship between the year-over-year change in the intermediate goods index and finished goods index. When the crude goods growth falls under finish goods - it usually drags finished goods lower.
Percent Change Year-over-Year - Comparing PPI Finished Goods (blue line) to PPI Intermediate Goods (red line)
Econintersect has shown how pricing change moves from the PPI to the Consumer Price Index (CPI).
Comparing Year-over-Year Change Between the PPI Finished Goods Index (blue line) and the CPI-U (red line)
The price moderation of the PPI began in September 2011 when the year-over-year inflation was 7.0%.
Caveats on the Use of Producer Price Index
Econintersect has performed several tests on this series and finds it fairly representative of price changes (inflation). However, the headline rate is an average - and for an individual good or commodity, this series provides many sub-indices for a specific application.
A very good primer on the Producer Price Index nuances can be found here.
Because of the nuances in determining the month-over-month index values, the year-over-year or annual change in the PPI index is preferred for comparisons.
There is a moderate correlation between crude goods and finished goods. Higher crude material prices push the finished goods prices up.
Comments
Log in or sign up to join the conversation.