September Producer Price Index: Increases and Largest YoY Rise Since 2014

Today's release of the September Producer Price Index (PPI) for Final Demand came in at 0.3% month-over-month seasonally adjusted, up from last month's 0.0%. It is at 0.7% year-over-year versus the 0.0% YoY last month. Core Final Demand (less food and energy) came in at 0.2% MoM, up from 0.1% the previous month and is up 1.2% YoY. Investing.com MoM consensus forecasts were for 0.2% headline and 0.1% core.

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

The Producer Price Index for final demand rose 0.3 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in August and declined 0.4 percent in July. On an unadjusted basis, the final demand index increased 0.7 percent for the 12 months ended in September, the largest 12-month rise since advancing 0.9 percent in December 2014. (See table A.)

In September, over three-quarters of the advance in final demand prices can be traced to a 0.7-percent increase in the final demand goods index. Prices for final demand services inched up 0.1 percent.

The index for final demand less foods, energy, and trade services moved up 0.3 percent in September, the same as in August. For the 12 months ended in September, prices for final demand less foods, energy, and trade services rose 1.5 percent, the largest increase since climbing 1.5 percent for the 12 months ended November 2014. 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 overlay illustrates, the Final Demand and Finished Goods indexes are highly correlated.

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

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. The plunge that began in mid-2014 in headline PPI is, of course, energy related. It is now off its interim low set in April of last year. Year-over-year Core PPI, now at 1.3%, has trended lower from its 2.3% interim high set the middle of last year.

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.