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 10/15/08 For Sep 2008 | |||||||||||||||||||||||||
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Highlights
Producer price inflation at the headline level continued downward due another drop in energy costs. Core inflation, however, rebounded. The overall PPI fell 0.4 percent, following a 0.9 percent fall in August. The September decline was greater than the consensus projection for a 0.4 percent drop in the overall PPI. In contrast, the core PPI rate rose to 0.4 percent, following a more moderate 0.2 percent gain in August. The September core topped the market forecast for a 0.2 percent increase. The core was led by a rebound in prices for cars and trucks but other components also showed a firming in price pressure.
As in August, energy pulled headline inflation down in September with a 2.9 percent drop after a 4.6 percent drop the prior month. Food price inflation eased to 0.2 percent from 0.3 percent in August.
Motor vehicles reversed their impact on the core in August. The core rebounded in large part due to the end of discounting by auto dealers. Passenger cars jumped 0.5 percent while light trucks spiked 1.0 percent.
For the overall PPI, the year-on-year rate dropped to up 8.7 percent in September from up 9.7 percent the month before (seasonally adjusted). The core rate jumped to up 4.1 percent from up 3.7 percent in August
Today's PPI report is mixed toward equities and bonds as the core is still showing the effects of earlier cost hikes from energy and commodity prices. But looking forward, lower oil prices and a weak economy will help all components soften. Markets are more likely focusing today, however, on poor earnings, a negative retail sales report, and a down Empire State manufacturing down.
The producer price index fell 0.9 percent in August, partially reversing July's huge 1.2 percent spike. 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. The core PPI rate eased to 0.2 percent, after jumping to 0.7 percent in July. The core was pushed down by discounting by auto dealers. Passenger cars slipped 0.3 percent while light trucks dropped 1.9 percent. Looking ahead, it is uncertain how energy will impact headline inflation since gasoline was not down in all parts of the U.S. for September overall even though crude prices declined. Hurricane Gustav and Hurricane Ike led to gasoline shortages and higher prices in some parts of the country during the latter part of the month. We likely will see motor vehicle prices have less favorable impact in September as in the prior month since GM's big discount program has ended for now.
PPI Consensus Forecast for September 08, m/m: -0.4 percent
Range: -1.5 to +0.2 percent
PPI Consensus Forecast for September 08, y/y: +8.4 percent
Range: +7.5 to +9.3 percent
PPI ex food & energy Consensus Forecast for September 08, m/m: +0.2 percent
Range: -0.1 to +0.3 percent
PPI ex food & energy Consensus Forecast for September 08, y/y: +3.6 percent
Range: +3.6 to +3.9 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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