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 11/18/08 For Oct 2008 | |||||||||||||||||||||||||
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Highlights
Producer price inflation fell sharply at the headline level on lower energy but the core is remaining stubbornly high due to a few components. The overall PPI dropped 2.8 percent, following a 0.4 percent decline in September. The October decrease was greater than the market forecast for a 1.7 percent decline in the overall PPI. However, the core PPI rate increased 0.4 percent - matching September's gain and far exceeding the consensus forecast for a 0.1 percent rise.
Pulling the headline number down was a monthly 12.8 percent plunge in energy costs, following a 2.9 percent decrease in September. Within energy, gasoline plummeted 24.9 percent, home heated oil declined 9.6 percent, natural gas fell, 5.9 percent, and electricity dipped 0.5 percent. Food fell 0.2 percent after a rise of the same amount the month before.
The core rate was kept elevated due to strong price gains for light trucks, civilian aircraft, and beer. Nonetheless, despite the strong core in October, price weakness is spreading among components. Significant decreases were seen for passenger cars, pharmaceutical preparations, and computer equipment.
For the overall PPI, the year-on-year rate dropped to up 5.1 percent in October from up 8.7 percent the month before (seasonally adjusted). The core rate firmed to up 4.4 percent from up 4.1 percent in September.
Overall, markets focused on the headline number as favorable and anticipate a slowing economy will bring the core down. Also, more attention was being given Hewlett-Packard's better-than-expected revenues. Markets were little changed on the PPI report.
The producer price index for September 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. 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. We are likely to see further PPI weakness in October at the headline level due to the continued drop in oil and other commodity prices. The core also should soften as auto dealers have had a sharp decline in sales and there likely will be some reversal in motor vehicle prices from the September price increases.
PPI Consensus Forecast for October 08, m/m: -1.7 percent
Range: -2.8 to -0.3 percent
PPI Consensus Forecast for October 08, y/y: +6.0 percent
Range: +5.4 to +7.8 percent
PPI ex food & energy Consensus Forecast for October 08, m/m: +0.1 percent
Range: -0.3 to +0.3 percent
PPI ex food & energy Consensus Forecast for October 08, y/y: +4.0 percent
Range: +3.6 to +4.3 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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