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 3/18/08 For Feb 2008 | |||||||||||||||||||||||||
| |||||||||||||||||||||||||
Highlights
Overall producer price inflation in February moderated but the core rate showed sharp acceleration, putting the Fed on the hot seat this afternoon with market expectations of a large interest rate even as inflation is still strong. The overall PPI rose a moderate 0.3 percent, following a 1.0 percent surge in January. The February gain was a little lower than the market projection for a 0.4 percent boost in the overall PPI. The core rate inflation jumped to a 0.5 percent increase, following a 0.4 percent jump the month before and well exceeded the consensus expectation for a 0.2 percent increase in the core rate.
The year-on-year rate for the overall PPI stood at up 6.8 percent in January (seasonally adjusted) from up 7.7 percent in January. The year-on-year core rate increased to up 2.5 percent in February from up 2.4 percent in January. This is the highest rate for the core since 2.5 percent seen in September 2005.
For the core PPI, the February increase was led by pharmaceuticals, up 1.3 percent; passenger cars, up 0.8 percent; and light trucks; up 0.8 percent. Adding to the headline gain, energy rose a still strong 0.8 percent while food was somewhat offsetting with a 0.5 percent decline.
Today's PPI numbers are a reminder for the Fed that inflation is still a problem. Housing starts were a little better than expected this morning but housing permits fell notably, indicating that housing is still not at bottom, so the permit part of the report may partially offset inflation fears from the jump in the core PPI. Equities may not like the combined numbers - the high core PPI suggests less room for the Fed to cut while the permit numbers indicate housing is still depressed. Nonetheless, market attention now turns to the Fed decision at 2:15 p.m. ET today.
The producer price index was red hot in January with a monthly 1.0 percent surge with the core rate increasing to 0.4 percent. More recent data have been mixed. We got an unusually early release for the CPI and it came in very tame for February. In contrast, commodities prices continue to be robust and the PPI is more sensitive to commodities than the services-laden CPI. One oddity to some about the February CPI number was the decline in energy costs. This was likely due to seasonal adjustment expectations versus still high unadjusted energy prices. We may see a similar effect on the PPI energy components which could soften the PPI for February.
PPI Consensus Forecast for February 08: +0.4 percent
Range: -0.1 to +1.0 percent
PPI ex food & energy Consensus Forecast for February 08: +0.2 percent
Range: +0.1 to +0.3 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. |
| 2008 Release Schedule | ||||||||||||||||||||||||||
|
powered by
![[Econoday]](../../../../../../../../../images/logo.gif){kind=logo}