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 3/15/07 For Feb 2007 | |||||||||||||||||||||||||
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Highlights
Producer prices rebounded a sharp 1.3 percent in February, following a 0.6 percent drop the prior month. February's increase was well above the consensus projection for a 0.5 percent boost in the producer price index. The core rate firmed to a 0.4 percent boost in February, following a 0.2 percent increase in January. The markets had expected the core rate to post a 0.2 percent gain.
The year-on-year rate for the overall PPI jumped to up 2.6 percent from up 0.2 percent in January. The year-on-year core rate was unchanged in February at up 1.8 percent.
For the overall PPI, strength was in energy components. By special groupings, energy rebounded 3.5 percent, following a 4.6 percent decline in January. February's boost was led by gasoline, up 5.3 percent; home heating oil, up 6.0 percent; and residential gas, up 4.1 percent. Consumer food prices also posted a 1.9 percent increase in February, following a 1.1 percent gain the prior month. Fresh fruits jumped 15.7 percent, fresh & dried vegetables increased 8.3 percent, pork rose 4.9 percent among the leading subcomponents in food.
The core PPI was up 0.4 percent for February with a few subcomponents providing most of the boost. The February increase in the core PPI was led by a 4.1 percent jump in prices for tobacco products and a 1.7 percent increase in light trucks. Outside of these subcomponents, core PPI series were mixed but leaning on the upside.
Overall prices at the crude level of production rebounded 8.9 percent, following a 6.3 percent fall in January. Excluding food and energy, crude prices increased 2.7 percent, following a 1.6 percent increase in January. Prices at the intermediate level rose 1.1 percent in February, following a 0.7 percent decrease in January. Excluding food and energy, intermediate prices increased 0.2, following no change in January.
Today's report shows continued price pressure with not just energy boosting producer prices but also food and selected core subcomponents. Certainly the tobacco and light truck price hikes should be discounted. Other reports out this morning went in opposite directions on the inflation front - jobless claims fell while the Empire State manufacturing index fell sharply. Net, the Fed likely stays on hold unless real sector numbers come in weaker.
The producer price index fell 0.6 percent in January, following a 0.9 percent increase in December. The decline was led by energy components. However, oil prices have since firmed and should boost the February PPI. The core rate rose 0.2 percent in January - with declines in prices for passenger cars and for light trucks pulling the core down. Any reversal or even flattening in motor vehicle prices could exert upward pressure on the core PPI.
PPI Consensus Forecast for February 07: +0.5 percent
Range: +0.1 to +1.1 percent
PPI ex food & energy Consensus Forecast for February 07: +0.2 percent
Range: +0.1 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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