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Economy in Brief

U.S. PPI Jumps With Higher Gasoline Prices; Core Prices Firm As Well
by Tom Moeller July 14, 2009

The economic recession may be restraining pricing power generally, but not last month. The PPI for finished goods jumped 1.8% after a 0.2% uptick during May. Consensus expectations had been for a 0.9% increase. The real news, however, was that some of this pricing strength bled over and raised core pricing power. The PPI less food & energy rose 0.5%, the strongest gain since October.

Higher energy prices, up 6.6% m/m, led the strength in last month's PPI. The rise did not, however, recoup much of energy's earlier weakness so y/y prices were still down by one quarter. The June gain was led by an 18.5% pop in gasoline prices but they were still off 37.9% y/y. Natural gas prices also were firm last month and rose 2.5% (-27.1% y/y).

The PPI for finished consumer goods less food & energy was strong and posted a 0.5% (3.8% y/y) gain. It was the strongest increase since October and was led by a 0.9% (3.5% y/y) gain in durables prices. Core nondurable price gains have been weakening, however, and were up just 0.1%. The y/y gain of 3.9% is off its peak of 5.9% reached last fall. Capital equipment prices also firmed by 0.5% (2.7% y/y) after five months during which they were unchanged.

Prices for intermediate goods also moved higher by 1.9% due to higher energy prices. Food prices also were firm for the third straight month. Less food & energy, intermediate goods prices posted the first increase since last September. Nevertheless, the 0.4% rise left core prices down a record 6.5% y/y.

The crude materials PPI rose for a third month led by a 10.9% rise in crude energy prices. Despite this increase, however, crude energy prices remained down by more than one-half from the year ago level. Finished food prices reversed their May increase. They fell 0.4% and the decline left them down by 20.9% from last year. Core pricing power at the crude level also improved and posted a 2.6% increase. That was the third consecutive monthly increase and further indicative of improvement in factory sector activity.

The Producer Price Index data is available in Haver's USECON database. More detailed data is in the PPI and in the PPIR databases.

Producer Price Index (%) June May Y/Y 2008 2007 2006
Finished Goods 1.8 0.2 -4.3 6.4 3.9 2.9
  Core 0.5 -0.1 3.4 3.4 2.0 1.5
Intermediate Goods 1.9 0.3 -12.4 10.5 4.0 6.4
  Core 0.4 -0.2 -6.5 7.4 2.8 6.0
Crude Goods 4.6 3.6 -40.2 21.4 11.9 1.4
  Core 2.6 6.7  -35.4 14.8 15.6 20.8
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