Producer Price Index: Headline is Tame but Core Inflation Jumps

Today’s release of the Producer Price Index PPI for March shows a jump in core inflation. The seasonally adjusted finished goods number was up unchanged month-over-month and a moderate 2.8% year-over-year, down from last month’s adjusted 0.4% MoM and 3.4% YoY. Core PPI (ex food and energy) rose 0.3% MoM, up from last month’s adjusted 0.2%. The YoY 2.9% was unchanged from last month. Briefing.com had posted a MoM consensus forecast of 0.3% for Headline PPI and 0.2% for Core PPI.

The March numbers show a fractional crossover of the YoY rates for Headline and Core, something that last occurred in late 2008.

Here is a snippet from the news release:

Finished core: The index for finished goods less foods and energy moved up 0.3 percent in March, the fifth consecutive increase. Over one-third of the March advance can be attributed to prices for light motor trucks, which rose 0.7 percent. Increases in the indexes for passenger cars and for soaps and other detergents also contributed to higher finished core prices. (See table 2.)

Finished foods: Prices for finished consumer foods moved up 0.2 percent in March, the first increase since November 2011. Leading the March advance, the index for fresh and dry vegetables jumped 12.8 percent. Higher prices for pork also contributed to the rise in the finished foods index.

Finished energy: Prices for finished energy goods fell 1.0 percent in March after rising 1.3 percent a month earlier. This decrease was led by the gasoline index, which declined 2.0 percent, seasonally adjusted. (On an unadjusted basis, the gasoline index climbed 7.5 percent.) Lower prices for diesel fuel and residential electric power also were factors in the decline in the finished energy goods index.   More…

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. As we can see, Core PPI declined significantly during 2009 and increased modestly in 2010. The rate of increase moved higher in 2011.

As the next chart shows, the Core Producer Price Index is more volatile than the Core Consumer Price Index. For example, during the last recession producers were unable to pass cost increases to the consumer. Likewise in 2010 the Core PPI generally rose while Core CPI generally fell. But over the past year these two core metrics have been moving in tandem.

Tomorrow will bring us the more widely followed CPI inflation indicator.

Doug Short Ph.d is the author of dshort.com.