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 10/12/07 For Sep 2007 | |||||||||||||||||||||||||
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Highlights
Overall producer prices in September rebounded sharply on higher oil prices while the core rate was subdued, giving the Fed a mixed picture on inflation. The overall PPI rebounded 1.1 percent, following a 1.4 percent drop in August. The September increase was above the consensus forecast for a 0.4 percent rise and even above the upper range of forecasts of 1.0 percent. The core rate slowed to a 0.1 percent rise in September, following a 0.2 percent gain in August. The September core rate came in just below the consensus forecast for a 0.2 percent rise in the core rate.
For the overall PPI, the rebound was primarily due to rebound in energy prices. By special groupings, energy increased 4.1 percent, following a 6.6 percent drop in August. Consumer food prices rebounded a sharp 1.5 percent, following a 0.2 percent dip the month before. Within the core index, consumer goods rose 1.6 percent while capital equipment prices slipped 0.1 percent.
Overall prices at the crude level of edged up only 0.1 percent in September, following a 3.0 percent decline in August. Excluding food and energy, crude prices increased 1.6 percent, following a 1.3 percent gain in August. At the intermediate level, prices increased 0.4 percent, following a 1.2 percent drop in August. Excluding food and energy, intermediate prices edged up 0.1 percent, after falling 0.5 percent the prior month.
The year-on-year rate for the overall PPI jumped to up 4.4 percent in September from up 2.1 percent in August. The year-on-year core rate came in at 2.0 percent in September, compared to up 2.2 percent in June.
Today's report is mixed on inflation news. While the core looks good, the Fed will be worrying whether higher oil prices will be feeding into overall inflation. Also, headline retail sales came in strong today, with the overall impact of the reports bumping up interest rates. The impact on equities will be tough to figure - it is good that spending is holding up but higher rates could offset.
The producer price index fell 1.4 percent in August, following a 0.6 percent spike in July. But the drop in August was primarily due to a decline in oil prices - a factor that reversed in September. We are likely to see a swing in the other direction for the headline number for September. The core rate has been relatively well-behaved with a 0.2 percent rise in August, following a 0.1 percent rise the month before. However, higher oil and commodity prices could be starting to feed into the core rate.
PPI Consensus Forecast for September 07: +0.4 percent
Range: -1.0 to +0.8 percent
PPI ex food & energy Consensus Forecast for September 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. |
| 2007 Release Schedule | ||||||||||||||||||||||||||
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