Today’s release of the Producer Price Index PPI for September shows a strong and unexpected increase in inflation pressures. The year-over-year finished goods number rose 0.8% month-over-month and 7.0% year-over-year. Core PPI (ex food and energy) came in at a 0.2% MoM and 2.5% YoY. Briefing.com had posted a MoM consensus forecasts of 0.2% for Headline PPI and 0.1% for Core PPI. Here are a couple of snippets from the news release:

Finished goods: In September, the increase in the index for finished goods was broad based, with prices for finished energy goods rising 2.3 percent, the index for finished goods less foods and energy moving up 0.2 percent, and prices for finished consumer foods advancing 0.6 percent.

Finished energy: The index for finished energy goods advanced 2.3 percent in September after decreasing in each of the previous three months. Nearly seventy percent of this rise can be attributed to the gasoline index, which increased 4.2 percent. Higher prices for liquefied petroleum gas and diesel fuel also were factors in the rise in the finished energy goods index. (See table 2.)   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 but had been rising since the late spring of last year. The increase had eased over the previous four months, but September saw a strong uptick.

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 in recent months these two core metrics have been moving in tandem.

Tomorrow’s CPI will be closely watched. Will we see evidence that CPI has also risen?

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

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