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 1/15/08 For Dec 2007 | |||||||||||||||||||||||||
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Highlights
Overall producer prices in December edged down while the core rate moderated. This is good news on the inflation front. The overall PPI slipped 0.1 percent in December, following a 3.2 percent surge in November. The December increase came in below the consensus projection for a 0.2 percent boost in the overall PPI. The core rate moderated to a 0.2 percent increase, following a 0.4 percent jump in November. The core rate for December matched the consensus forecast for a 0.2 percent increase in the core rate. The headline number got some help from the energy component, passenger cars, and light trucks-all of which declined. Today's PPI numbers are good news for the Fed and helps make way for an interest rate cut on January 30.
The year-on-year rate for the overall PPI dropped to up 6.8 percent in December from up 7.7 percent in November. The year-on-year core rate firmed to up 2.1 percent in December from up 1.9 percent in November.
For the overall PPI, the December decline was led by the energy component, which fell 1.9 percent, following a 14.1 percent monthly surge in November. December's headline number and core number were both pulled down by passenger cars and light trucks which declined 0.9 percent and 0.3 percent, respectively. Some strength was seen in tobacco products, up 0.6 percent in December; pharmaceuticals, up 0.4 percent; and computers, up 0.4 percent.
Overall prices at the crude level rose 1.0 percent in December, following an 8.7 percent spike in November. Excluding food and energy, crude prices in December were unchanged, following a 0.5 percent dip the previous month. At the intermediate level in December, prices slipped 0.2 percent, following a 3.7 jump in November. Excluding food and energy, intermediate prices were flat, following a 1.0 percent boost in November.
Today's PPI report indicates that inflation has paused at least temporarily and can allow the Fed to set aside its inflation worries for now and cut the fed funds target rate on January 30. Bonds will like the sluggish PPI, retail sales, and Empire State manufacturing reports but equities may worry about recession more than interest rate cuts.
The producer price index spiked 3.2 percent in November, following a 0.1 percent uptick in October. Meanwhile, the core rate jumped to a 0.4 percent increase, following no change in October. Price gains in November were led by energy and by motor vehicles. With oil prices rising, the headline number is likely to remain strong in December, but softer consumer and business spending could slow the core rate.
PPI Consensus Forecast for December 07: +0.2 percent
Range: -0.1 to +0.5 percent
PPI ex food & energy Consensus Forecast for December 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. |
| 2008 Release Schedule | ||||||||||||||||||||||||||
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