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--Barry Asmus

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Thursday, July 14, 2011

Producer Price Index

We have a bumper crop of market data today!.
Starting us off (because it's the one I clicked on first - all three reports actually come out at the same time), we have the Producer Price Index.  This is, of course, a measure of inflation as it impacts producers and manufacturers at all stages of the process - raw materials, intermediate goods, and finished products.  Increases in PPI don't always correlate into a 1:1 increase in CPI, there are a number of other factors to consider[1], but it is considered a definite indicator of the direction of inflation.
May's figures weren't bad at all.  PPI for finished goods rose 0.2%, which missed expectations but not by a whole lot, and the core PPI for finished goods rose 0.2% as well.  PPI for finished food fell 1.4% (on a 12.2% decline in fresh and dry vegetable prices) and PI for finished energy rose 1.5% (driven by a 2.7% increase in gasoline prices).  PPI for intermediate goods rose 0.9%, and PPI for crude goods fell 4.1% (mostly on a 4.7% decline in the cost of copper).
For June, the Econoday-surveyed analysts are expecting a 0.3% decline in PPI for finished products, driven by declines in food and/or energy - core PPI for finished products is expected to increase 0.2%.
Are they right?  We turn to the Producer Price Indexes - June 2011 news release from the Bureau of Labor Statistics to find out.  And what we find out is that they are wrong, but in a good way.  The PPI for finished goods decreased 0.4%, beating expectations.  On the other hand, we missed expectations on the core PPI, which rose 0.3%.  All of this was driven by a 2.8% decline in the cost of finished energy (which was driven in its turn by a 4.7% decline in gasoline prices).  PPI for intermediate goods remained flat, with a change of 0.0%, again driven by a decline in energy costs (0.8%, helping offset a 0.4% increase in intermediate foods and feeds costs).  PPI for crude goods fell 0.6%, also driven by energy (which fell 4.1%, helping to offset a 2.1% increase in crude foodstuffs and feedstuffs).
So far, the morning is looking up.
[1]  Like manufacturers asking themselves questions like "If I pass these costs on to my buyers, will they simply stop buying?"

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