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 5/11/07 For Apr 2007 | |||||||||||||||||||||||||
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Highlights
Producer prices jumped overall in April due to a spike in energy components while the core PPI held steady. The overall PPI surged 0.7 percent in April, following a 1.0 percent jump in March. April's increase matched the consensus expectation for a 0.7 percent rise in the overall producer price index. The core rate was flat in April, also following no change in March. The markets had forecast the core rate to rise 0.2 percent.
The year-on-year rate for the overall PPI rose to up 3.2 percent in April from up 3.1 percent in March. The year-on-year core rate was unchanged at 1.6 percent.
For the overall PPI, strength was in energy. By special groupings, energy increased a monthly 3.4 percent in April, following a 3.6 percent boost in March. April's rise was led by gasoline, up 8.2 percent; residential gas, up 0.5 percent; and home heating oil, up 4.8 percent. Consumer food prices moderated to a 0.4 percent increase, following a 1.4 percent advance in March.
Keeping the core rate steady was a dip in consumer goods excluding foods and energy, which slipped 0.1 while capital equipment edged up 0.1 percent. Passenger car prices fell 1.0 percent and light motor trucks declined 0.5 percent.
Overall prices at the crude level of production fell 1.5 percent, following a 3.2 spike in March. Excluding food and energy, crude prices rose 0.4 percent, following a 7.7 percent surge the month before. Prices at the intermediate level rose 0.9 percent in April, following a 1.0 percent boost in March. Excluding food and energy, intermediate prices increased 0.8 percent, following a 0.2 percent gain in March.
Today's report has positive news on the core rate but pass through of energy costs is a remaining concern. The PPI numbers will be positive for bonds (focusing on core) and would definitely be a positive for equities except for a weak retail sales report showing flat ex-autos sales in April.
The producer price index jumped 1.0 percent in March due to a surge in oil prices. However, the core rate slowed to no change in March, following a 0.4 percent increase in February. Keeping the core rate flat were a dip in capital equipment and a modest rise in consumer goods excluding food and energy.
PPI Consensus Forecast for April 07: +0.7 percent
Range: +0.4 to +1.2 percent
PPI ex food & energy Consensus Forecast for April 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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