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Economy in Brief

PPI Tame, Core firm
by Tom Moeller June 13, 2006

The finished goods producer price index rose 0.2% during May after the 0.9% spike in April. Consensus expectations had been for a 0.4% rise.

Prices less food & energy, however, were a bit firmer than expected during May. The 0.3% gain in the core PPI compared to Consensus expectations for a 0.2% rise and followed two months of 0.1% increase. During the last ten years there has been a 47% correlation between the y/y change in core producer prices and the change in the core CPI for goods. Over the last twenty years the correlation has been 78%.

Prices of all finished consumer goods less food & energy rose 0.2% (1.7% y/y). Durable consumer goods prices ticked up 0.1% (0.4% y/y) after an unchanged April reading. However, core consumer nondurable prices rose 0.4% (2.6% y/y). Capital equipment prices also were firm and rose 0.3% (1.4% y/y).

Finished energy prices rose 0.4% (20.1% y/y) after a 4.0% April spike. Gasoline prices rose 2.2% (42.4% y/y) and home heating oil rose 2.6% (39.4% y/y). Natural gas prices fell for the fourth month this year. The 3.1% decline nevertheless left prices up 9.4% versus one year ago.

Intermediate goods prices jumped another 1.1% as energy prices rose 1.1% (20.7% y/y). Core intermediate prices also jumped 1.1%.

Crude goods prices surged 2.0% as energy prices rose 2.5% (14.9% y/y). That gain, however, was eclipsed by a 6.2% jump in core crude prices. Copper base scrap (89.0% y/y), aluminum scrap (46.9% y/y) and iron & steel scrap (32.0% y/y) prices added to earlier strong gains. 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 2005 2004 2003
Finished Goods 0.2% 0.9% 4.3% 4.9% 3.6% 3.2%
  Core 0.3% 0.1% 1.6% 2.4% 1.5% 0.2%
Intermediate Goods 1.1% 0.9% 8.8% 8.0% 6.6% 4.7%
  Core 1.1% 0.4% 6.3% 5.5% 5.7% 2.0%
Crude Goods 2.0% 1.2% 8.7% 14.6% 17.5% 25.1%
  Core 6.2% 4.7% 26.8% 4.8% 26.5% 12.4%
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