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Economy in Brief

"Core" PPI Unchanged in August
by Tom Moeller September 13, 2005

The producer price index for finished goods less food & energy, the so called "core" PPI, was unchanged last month versus Consensus expectations for a 0.1% increase and versus a 0.4% gain in July. The overall PPI rose 0.6% in August and that was below Consensus expectations for a 0.8% increase.

The core PPI is focused on since it provides an indication of the degree to which pressures on energy or food prices may be "spilling over."

Consumer durable goods prices fell 0.1% (+1.3% y/y) led by declines in passenger cars (+0.1% y/y) and appliances (+2.1% y/y). Core consumer nondurable goods prices rose 0.1% (3.7% y/y) while capital goods prices fell 0.1% (2.2% y/y).

Already, the pressure which lifted energy prices 3.7% (19.1% y/y) in August has begun to dissipate. The domestic spot market price of WTI crude oil yesterday fell to $63.35/bbl. from a daily high of $69.82 two weeks ago and an average $64.97 in August. Natural gas prices also have backed off 15% from the daily high but as of yesterday remained up 14% versus the August average.

Intermediate goods prices again were strong and rose 0.7% due to a 3.3% rise in energy prices. Core intermediate goods prices, however, declined for the fourth consecutive month.

Crude prices also reflected the strength in energy prices, up 3.8% (28.8% y/y). Core crude prices also were strong for the second straight month reflecting a 22.8% (-26.9% y/y) jump in iron & steel scrap prices and higher prices for aluminum (8.8% y/y) and copper (49.5% y/y) scrap. 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.

Hard "Core" Inflation from the Federal Reserve Bank of St. Louis is available here.

Producer Price Index Aug July Y/Y 2004 2003 2002
Finished Goods 0.6% 1.0% 5.1% 3.6% 3.2% -1.3%
  Core 0.0% 0.4% 2.5% 1.5% 0.2% 0.1%
Intermediate Goods 0.7% 1.0% 6.1% 6.6% 4.6% -1.5%
  Core -0.1% -0.1% 3.2% 5.7% 2.0% -0.5%
Crude Goods 2.3% 6.7% 11.4% 17.5% 25.1% -10.6%
  Core 4.6% 3.1% -0.1% 26.6% 12.4% 3.8%
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