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 7/15/08 For Jun 2008 | |||||||||||||||||||||||||
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Highlights
Producer price inflation in June accelerated dramatically in June at the headline level but remained moderate at the core level. The overall PPI inflation rate remained red hot in June with a 1.8 percent jump, following a 1.4 percent spike the month before. The June increase was well above the market projection for a 1.4 percent jump in the overall PPI. The core PPI rate, however, held steady at a 0.2 percent rise and fell short of market expectations for a 0.3 percent gain.
The headline number was led by a monthly 6.0 percent surge in energy costs and a 1.5 percent gain in food prices. Within energy, gasoline spiked 9.0 percent for the month and is up 39.7 percent for the year.
Helping to keep the core rate moderate was a 1.8 percent decline in prices for light trucks, although passenger cars rebounded 2.2 percent. Also weak were pharmaceuticals, down 0.1 percent, and tobacco products, unchanged.
For the overall PPI, the year-on-year rate jumped to up 9.1 percent from 7.2 percent in May (seasonally adjusted). The core rate rose to up 3.1 percent from up 3.0 percent in May.
Today's report shows food and energy price inflation continuing to place headline inflation back to the 1970s. It is some comfort to the Fed that core inflation has not picked up but that is not much consolation to consumers' pocketbooks.
The producer price index 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. Meanwhile, the core PPI rate grew a more moderate 0.2 percent, following a 0.4 percent boost in April. The surge in headline inflation was largely due to higher energy costs as gasoline spiked 9.3 percent for the month and home heating oil increased 8.0 percent. Markets will be watching to see if higher energy costs will spill into the core rate. Certainly some core components are feeling upward pressure from higher energy bills, but the soft economy is also keeping some components weak with car prices down 1.0 percent in the latest month and light truck prices down 0.9 percent.
PPI Consensus Forecast for June 08: +1.4 percent
Range: +0.8 to +2.4 percent
PPI ex food & energy Consensus Forecast for June 08: +0.3 percent
Range: +0.1 to +0.3 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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