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 12/13/07 For Nov 2007 | |||||||||||||||||||||||||
| |||||||||||||||||||||||||
Highlights
Overall producer prices in November surged while the core rate also heated up sharply. The overall PPI spiked 3.2 percent in November, following a 0.1 percent uptick in October. The November increase was double the market forecast for a 1.6 percent surge in headline inflation. The core rate jumped to a 0.4 percent increase, following no change in October. The core rate for November came in above the consensus forecast for a 0.2 percent rise in the core rate. Price gains were led by energy and by motor vehicles.
The year-on-year rate for the overall PPI jumped to up 7.7 percent in November from up 6.0 percent in October. The year-on-year core rate, however, declined to up 1.9 percent in November, compared to up 2.5 percent in October.
For the overall PPI, the November surge was led by a 14.1 percent jump in energy costs, following a 0.8 percent dip the month before. Gasoline jumped 34.8 percent after declining 3.1 percent in October. Heating oil and diesel fuel also posted strong gains. Prices for light motor trucks rebounded 2.3 percent in November after decreasing 2.7 percent the prior month. Weakness was seen in cigarettes, which fell 0.5 percent in the latest month, compared to a 1.0 percent jump in October. Prices gains were widespread.
Overall prices at the crude level jumped 8.7 percent in November, following a 2.4 percent jump in October. Excluding food and energy, crude prices in November declined 0.5 percent, following a 1.4 percent gain the prior month. At the intermediate level, prices increased 3.7 percent, following a 0.1 advance in October. Excluding food and energy, intermediate prices rose 1.0 percent, following a 0.1 percent gain the previous month.
Today's PPI report clearly is bad news on the inflation front. Markets have overestimated the decline in inflation pressures and overestimated the Fed's ability to cut rates looking forward. Bond markets will not like today's numbers at all. Equities could have a mixed reaction this morning due to positive retail sales and low unemployment claims. But the focus seems to be on whether the Fed's credit crunch rescue will work.
The producer price index increased a modest 0.1 percent in October, following a 1.1 percent boost in September. The core rate held steady with no change, following a 0.1 percent rise in September. However, some special factors kept both rates soft for the latest month. For the overall PPI, the latest gain was kept soft by declines in energy and light trucks. Weakness in the overall PPI was due to a drop in truck prices and due to a temporary dip in energy costs. Energy is likely to be headed upward while truck prices may remain soft but not as much as in October in general.
PPI Consensus Forecast for November 07: +1.6 percent
Range: +0.5 to +2.3 percent
PPI ex food & energy Consensus Forecast for November 07: +0.2 percent
Range: 0.0 to +0.2 percent
![[Chart]](chart.gif)
|
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)
|
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 | ||||||||||||||||||||||||||
|
powered by
![[Econoday]](../../../../../../../../../images/logo.gif){kind=logo}