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 4/15/08 For Mar 2008 | |||||||||||||||||||||||||
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Highlights
Overall producer price inflation in March came in red hot although the core rate remained moderate in the latest monthly number. The overall PPI jumped a sharp 1.1 percent, following a 0.3 percent gain in February. The March increase was far above the market projection for a 0.5 surge in the overall PPI. The core PPI rate eased to 0.2 percent, following a 0.5 percent spike the month before and matched consensus expectations.
A weak economy with a soft consumer sector does appear to be having an impact on the core rate as passenger car and light truck prices fell 0.2 percent and 0.3 percent, respectively. But causing the headline number to explode were spikes in food and energy, up 1.2 percent and 2.9 percent, respectively for the latest month.
The producer prices trend is not good with the overall year-on-year rate rising to up 6.9 percent (seasonally adjusted) from up 6.8 percent in February. The core rate jumped to a 2.8 percent year-ago pace (seasonally adjusted) from 2.5 percent in February.
The March PPI report shows that the Fed still needs to worry about inflation and will bump up interest rates. A stronger-than-expected Empire State survey will also firm rates. Equities will still likely wait on key earnings reports.
The producer price index has been giving mixed signals lately with the core rate showing some inflation heat. The overall PPI rose a moderate 0.3 percent in February, following a 1.0 percent surge in January. However, the core rate inflation jumped to a 0.5 percent increase, following a 0.4 percent jump the month before. For the core PPI, the February increase was led by pharmaceuticals, passenger cars, and light trucks. Headline inflation was moderated by a dip in food prices. Nonetheless, the trend for both headline and core inflation still appears to be up despite recent weakness in the U.S. economy as demand is still very robust overseas.
PPI Consensus Forecast for March 08: +0.5 percent
Range: 0.0 to +1.8 percent
PPI ex food & energy Consensus Forecast for March 08: +0.2 percent
Range: +0.1 to +0.5 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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