The June producer price index for finished goods increased 0.5% and exceeded Consensus expectations for a 0.3% rise. Excluding food & energy, however, prices rose an expected 0.2%.

Despite the relatively tame m/m rise in prices less food & energy, year to date prices have risen at a 3.1% annual rate, the fastest six month rate of increase since early last year. 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% (1.9% y/y) and rose at a 3.2% annual rate during the last six months. Durable consumer goods prices rose 0.2% (1.0% y/y) and the 2.8% annual rate of advance during the last six months was the fastest since January '05. A tame 0.1% rise in consumer nondurable prices (2.5% y/y) also belied the elevated nature of the rise during the last six months at a 3.4% rate.

Capital equipment prices rose 0.3% (1.8% y/y) for the second consecutive month. Here again, however, the 3.1% annual rate of advance during the last six months is elevated and the fastest since January of last year.

Finished consumer food prices showed strength in June with a 1.4% (0.6% y/y) increase that was the strongest since May 2004. A 15.0% (NSA, 3.3% y/y) jump in fresh fruit & melon prices fueled the increase along with a 38.1% (NSA, 36.6% y/y) rise in egg prices.

Finished energy prices increased 0.7% (19.1% y/y) as gasoline prices surged 6.3% (44.3% y/y) though natural gas prices fell for the fifth month this year (+7.2% y/y) and residential electric power costs fell 2.8% (+5.2% y/y).

Intermediate goods prices rose 0.7% as energy prices increased 0.4% (19.2% y/y) and food prices jumped 1.0% (-0.4% y/y). Core intermediate prices also rose a strong 0.8%. The six month growth in core intermediate goods prices remained elevated at 7.7% versus a 5.5% advance last year.

Crude goods prices reversed the prior month's strength with a 1.7% decline due to a 6.8% drop in energy prices (7.7% y/y). The decline reflected lower crude petroleum costs which have since risen to record high levels. In addition, core crude prices rose a strong 1.7%. Iron & steel scrap prices jumped a strong 6.2% (73.3% y/y) though aluminum base scrap prices eased 4.4% (+44.1% y/y). 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.

The Relationship between Expected Inflation, Disagreement, and Uncertainty: Evidence from Matched Point and Density Forecasts from the Federal Reserve Bank of New York can be found here.