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Economy in Brief

U.S. PPI Fell With Lower Gasoline Prices, Core Pricing Power Strong
by Tom Moeller September 12, 2008

U.S. finished producer prices declined 0.9% during July following a revised 1.2% increase during June. The decline was roughly double Consensus expectations for a 0.5% drop.

Lower energy prices pulled the overall PPI down with a 4.6% (+27.4% y/y) drop. Gasoline prices fell 3.5% but they remained up by nearly one half from July of last year. Natural gas prices also fell by 5.0% (+25.4% y/y). Residential electric power costs inched up 0.1% (+6.2% y/y).

For the second consecutive month finished consumer food prices rose 0.3% (9.2% y/y). Beef and veal broke out to the upside with a 1.6% (19.0% y/y) rise on the heels of a 7.4% July jump. Pork prices also were quite strong with a 10.1% (10.2% y/y) jump. Countering some of this strength was a 1.2% (+0.1% y/y) decline in dairy product prices and though fresh vegetable prices fell 14.3%, they remained up (9.6% y/y). Finally, prices for pasta products inched up just 0.1% but they're up 39.8% y/y.

Less food & energy the gain in prices eased to 0.2% after the 0.7% jump during July. The latest figure matched expectations. The momentum in core producer prices has, however, picked up. The 3.7% y/y increase is the strongest since early-1991. Prices of core finished consumer goods rose 0.2% and that lifted y/y growth in these prices to 4.0%, the strongest gain in ten years. Durable consumer goods prices fell 0.1% (+2.0% y/y) but core nondurable goods prices rose 0.6% (5.6% y/y) for the second consecutive month. Finally, though capital equipment prices inched up just 0.1%, that followed a 0.8% jump during July and the 3.2% y/y increase was the strongest since 1991.

Intermediate goods prices fell 1.0% with lower energy prices. That reversed some of the prior month's 2.7% rise. Excluding food & energy, however, these prices remained firm and they posted a 1.7% increase. The y/y gain of 12.5% was the strongest since 1980.

The crude materials PPI flopped 11.9% (+38.2% y/y) due to a 19.4% drop in energy prices. However, these prices still are up by more than one half year-to-year. Crude food prices fell 5.2% (+15.2% y/y). Less food & energy crude prices fell all of 1.9%. While that reversed most of the 3.4% July increase, the year-to-year gain of 33.5% is a near-record rise.

Producer Price Index (%) August July Y/Y 2007 2006 2005
Finished Goods -0.9 1.2 9.7 3.9 3.0  4.9 
  Core 0.2 0.7 3.7 1.9 1.5 2.4
Intermediate Goods -1.0 2.7 16.7 4.1 6.4  8.0
  Core 1.7 2.0 12.5 2.8 6.0  5.5
Crude Goods -11.9 4.2 38.2 12.1 1.4 14.6
  Core -1.9 3.4  33.5 15.6 20.8 4.9
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