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 6/17/08 For May 2008 | |||||||||||||||||||||||||
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Highlights
Producer price inflation in May surged at the headline level while the core rate remained moderate. The overall PPI jumped a red hot 1.4 percent, following a modest 0.2 percent rise in April. The May spike was well above the market projection for a 1.0 percent surge in the overall PPI. The core PPI rate grew a more moderate 0.2 percent, following a 0.4 percent boost in April and matched consensus expectations. The headline number was led by a 4.9 percent hike in energy prices while food also rose a strong 0.8 percent.
Within energy, gasoline spiked 9.3 percent for the month, home heating oil increased 8.0 percent, residential gas was up 3.8 percent, and electricity rose 0.6 percent.
The core rate was kept soft to a large degree by a 1.0 percent drop in passenger cars prices and by a 0.9 percent dip for light trucks.
Producer price inflation at the headline level is starting to look like a return to the 1970s. For the overall PPI, the year-on-year rate jumped to up 7.2 percent, compared to 6.4 percent in April (seasonally adjusted). The core rate was unchanged at up 3.0 percent.
Today's numbers will be of concern to the Fed despite the moderate core number as food and energy will be seen as eventually seeping into core numbers and boosting inflation expectations.
The producer price index in April moderated on temporary softness in food and energy. The overall PPI posted a 0.2 percent increase, following a sharp 1.1 percent surge in March. In contrast, the core PPI rate came in with a 0.4 percent boost, following a 0.2 percent rise in March. Both the headline number and the core figure appear to have some temporary factors affecting April movement. Food came in flat while energy declined slightly. For the core, both passenger cars and light trucks rebounded from declines in March. Headline inflation was kept soft by flat food prices and a dip in energy. But we are likely to see strengthening in food and especially in energy in May.
PPI Consensus Forecast for May 08: +1.0 percent
Range: +0.3 to +1.4 percent
PPI ex food & energy Consensus Forecast for May 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. |
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