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 9/12/08 For Aug 2008 | |||||||||||||||||||||||||
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Highlights
Producer price inflation in August turned negative at the headline level due to a drop in energy costs. Meanwhile, core inflation eased at least temporarily from heavy discounting by auto dealers. The overall PPI fell 0.9 percent, partially reversing July's huge 1.2 percent spike. August's decline was greater than the consensus projection for a 0.5 percent drop in the overall PPI. The core PPI rate eased to 0.2 percent, after jumping to 0.7 percent in July. The August core matched the market forecast for a 0.2 percent gain.
As expected, energy pulled headline inflation down in August with a 4.6 percent drop after a 3.1 percent boost in July. Food price inflation was unchanged at 0.3 percent.
Indeed, the core was pushed down by discounting by auto dealers. Passenger cars slipped 0.3 percent while light trucks dropped 1.9 percent. Otherwise, core components were mixed.
For the overall PPI, the year-on-year rate slipped to up 9.7 percent from 9.8 percent in July (seasonally adjusted). The core rate rose to up 3.7 percent in August from up 3.6 percent the previous month.
Today's PPI report is favorable toward bonds as is this morning's retail sales report which came in notably weak. Equities will likely focus on the deteriorating consumer sector and will likely be headed down.
The producer price index remained red hot in July, posting a 1.2 percent increase, following a 1.8 percent surge in June. Even the core PPI rate jumped 0.7 percent, surging beyond June's 0.2 percent increase. The headline number was led by energy but the core was boosted by a number of components. Looking ahead, recent declines in oil prices likely trickled down to the PPI and should pull the headline number down. Also, heavy discounting by auto dealers probably helped ease the core rate as well as the overall PPI. But don't forget the detail - the Fed will be looking to see if weakness is isolated and whether other components are still showing upward pressure.
PPI Consensus Forecast for August 08, m/m: -0.5 percent
Range: -1.2 to -0.1 percent
PPI Consensus Forecast for August 08, y/y: +9.9 percent
Range: +9.5 to +10.3 percent
PPI ex food & energy Consensus Forecast for August 08, m/m: +0.2 percent
Range: 0.0 to +0.4 percent
PPI ex food & energy Consensus Forecast for August 08, y/y: +3.6 percent
Range: +3.5 to +3.7 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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