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 6/14/07 For May 2007 | |||||||||||||||||||||||||
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Highlights
Overall producer prices in May continued to surge on higher energy costs while the core PPI rose modestly. The overall PPI jumped 0.9 percent in May, following a 0.7 percent boost in April. May's advance was above the consensus expectation for a 0.6 percent rise in the overall producer price index. The core rate firmed in May to a 0.2 percent increase, following no change in both March and April. The May figure matched market expectations. Within the core, however, capital goods were soft with a 0.1 percent rise while core consumer prices increased 0.3 percent.
The year-on-year rate for the overall PPI jumped to up 3.9 percent in May from up 3.2 percent in April. The year-on-year core remained unchanged at up 1.6 percent.
For the overall PPI, strength again was in energy. By special groupings, energy increased a monthly 4.1 percent in May, following a 3.4 percent boost in April. May's boost in energy was led by gasoline, up 10.2 percent, following an 8.2 percent increase in April. Home heating oil rose 2.3 percent in the latest month, following a 4.8 percent increase in April. Consumer food prices dipped 0.2 percent, following a 0.4 percent rise in April.
Overall prices at the crude level of production rebounded 2.0, following a 1.5 percent decline in April. Excluding food and energy, crude prices edged up 0.1 percent, following a 0.4 percent boost the prior month. Prices at the intermediate level jumped 1.1 percent in May, following a 0.9 percent hike in April. Excluding food and energy, intermediate prices increased 0.4 percent, following a 0.8 percent advance in April.
Today's report shows core prices generally moderate but energy costs continue to drive overall inflation higher. For now, the both the bond and equity markets should like the report. However, this morning other technical factors seem to be nudging rates up.
The producer price index jumped 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. The core rate was flat in April, also following no change in March. However, commodity prices have firmed recently and energy costs - among others - could be pushing on the core. Rising demand overseas also is concern.
PPI Consensus Forecast for May 07: +0.6 percent
Range: +0.2 to +1.0 percent
PPI ex food & energy Consensus Forecast for May 07: +0.2 percent
Range: +0.1 to +0.2 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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