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Economy in Brief

PPI Unexpectedly Down Sharply
by Tom Moeller June 14, 2005

The 0.6% decline in the May Producer Price Index for finished goods was triple Consensus expectations for a 0.2% fall and the 0.1% increase in prices excluding food & energy also was half the Consensus expectation.

Finished energy prices dropped 3.5% (+10.1% y/y) due to a 2.7% (+12.5% y/y) decline in gasoline and a 3.9% drop in fuel oil (44.4% y/y). Finished food prices also fell by 0.3% (+0.8% y/y).

Prices for finished consumer goods less food & energy rose a modest 0.1% (2.6% y/y). Consumer durable goods prices slipped 0.1% (+1.3% y/y) while core consumer nondurable goods prices rose 0.3% (3.6% y/y).

Capital goods prices ticked 0.1% (2.6% y/y) higher.

Intermediate goods prices fell hard due to a 2.6% (+14.0% y/y) drop in energy prices though food prices rose a moderate 0.4% (-8.4% y/y). The decline in core intermediate goods prices was the first since 2003.

Crude prices slumped with oil prices which pulled crude energy prices down 1.9% (+20.1% y/y) after a 7.2% jump in April. The 3.6% crater in core crude prices reversed more than all of the gains during the prior two months as metals prices fell sharply. During the last thirty years "core" crude prices have been a fair indicator of industrial sector activity with a 48% correlation between the six month change in core crude prices and the change in factory sector industrial production.

Producer Price Index May April Y/Y 2004 2003 2002
Finished Goods -0.6% 0.6% 3.5% 3.6% 3.2% -1.3%
  Core 0.1% 0.3% 2.6% 1.5% 0.2% 0.1%
Intermediate Goods -0.7% 0.8% 6.4% 6.6% 4.6% -1.5%
  Core -0.3% 0.2% 5.4% 5.7% 2.0% -0.5%
Crude Goods -2.0% 2.7% 6.1% 17.5% 25.1% -10.6%
  Core -3.6% 0.8% 9.5% 26.6% 12.4% 3.8%
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