The Producer Price Index (PPI) is a measure of the average price level for a fixed basket of capital and consumer goods received by producers. Why Investors Care
| Released on 2/16/07 For Jan 2007 | |||||||||||||||||||||||||
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Highlights
Producer prices fell much as expected due to lower energy prices and the core PPI posted a modest gain in line with expectations. Producer prices fell 0.6 percent in January, following a 0.9 percent increase in December. The decline was led by energy components. December's overall figure was essentially in line with the consensus projection for a 0.5 percent drop in the producer price index. The core rate rose 0.2 percent in January - the same as in December and matching the market forecast. The core rate was kept moderate by declines in prices for passenger cars and for light trucks.
For the overall PPI, weakness was in energy components - much as expected - and in motor vehicles. By special groupings, energy fell 4.6 percent in January, following a 2.2 percent increase in December. January's decline was led by gasoline, down 13.0 percent; home heating oil, down 8.3 percent; and residential gas, down 1.9 percent. Light trucks - part of capital equipment - fell 1.4 percent while passenger cars slipped 0.1 percent.
Overall prices at the crude level of production fell 6.3 percent in January, following a 2.8 percent increase in December. Excluding food and energy, crude prices increased 1.6 percent following a 0.5 percent rise in December. Prices at the intermediate level fell 0.7 percent in December, following a 0.5 percent increase in December. Excluding food and energy, intermediate prices were flat in both January and December.
The year-on-year rate for the overall PPI declined to up 0.2 percent from up 1.1 percent in December. The year-on-year core rate edged down to up 1.8 percent in January from up 2.0 percent in December.
Today's report is another Fed friendly number. Inflation is on a slow glide path downward. Equities and bonds will like this.
The producer price index jumped 0.9 percent in December, following a 2.0 percent jump in November with upward pressure primarily from oil prices. Most of the rise was in both food and energy. However, the core rate decelerated sharply to a 0.2 percent rise, following a 1.3 percent rebound in November.
PPI Consensus Forecast for January 07: -0.5 percent
Range: -1.0 to -0.1 percent
PPI ex food & energy Consensus Forecast for January 07: +0.2 percent
Range: 0.0 percent (flat) to +0.3 percent
![[Chart]](chart.gif)
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It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the PPI are mainly volatile because of sharp fluctuations in food and energy prices. The core PPI eliminates the sharper fluctuations. |
![[Chart]](chart_1.gif)
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Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core PPI does not fluctuate as much as the total PPI. |
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