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Economy in Brief

U.S. PPI Falls With Weak Energy & Core Prices
by Tom Moeller March 17, 2010

Producer price inflation eased last month. The finished goods PPI fell 0.6% after its strong 1.4% increase during January. Nevertheless, the 4.6% y/y gain remained nearly the strongest since the autumn of 2008. The February decline exceeded Consensus expectations for a 0.2% dip.

Lower energy prices were behind the decline in the PPI. Their 2.9% drop reversed some of the 5.1% January increase but left energy prices 17.7% higher than last year. A 7.4% decline (+48.7% y/y) in gasoline prices led the weakness and reversed most of the 11.5% January gain. Home heating oil prices also fell sharply. However, their 5.6% decline (+29.3% y/y) still left the annual gain at its strongest since the fall of 2008. Finally, natural gas prices rose a modest 0.8% (-8.0% y/y) and electricity prices rose 0.4% (-1.0% y/y).

Finished food prices repeated their 0.4% January increase. Their resulting 3.4% y/y increase was the strongest since December 2008. Severe weather caused a one-third y/y increase in prices for fresh fruits while egg prices (16.5% y/y) and pork prices (14.1% y/y) have been similarly firm. These strong gains have been offset by weak beef prices and declines in bakery, rice and pasta product prices.

Finished producer prices excluding food & energy edged up an expected 0.1%. The resulting 0.9% y/y increase was nearly the weakest since early-2004. The PPI for finished consumer goods less food & energy rose just 0.2% (1.7% y/y) following a 0.4% January gain. Finished durables prices edged up 0.1% (0.6% y/y) while core finished consumer nondurable goods prices gained 0.2% (2.4% y/y), their weakest since October. Capital equipment prices slipped 0.1% (+0.1% y/y) reflecting weakness amongst most products.

Prices for intermediate goods rose just 0.1% reflecting a 2.7% decline (+19.6% y/y) in energy and a 0.4% decline (+2.3% y/y) in food. The increase in core prices, however, moved higher to 0.9% and the 2.8% y/y increase was the strongest since December 2008. The crude materials PPI fell 3.5% due to a 6.4% decline (+49.8% y/y) in energy prices. Core crude prices were led modestly lower due to a 7.4% decline (+59.7% y/y) in aluminum prices. Versus last year copper prices also have been strong and doubled while iron & steel scrap prices have risen by two-thirds.

The producer price data is available in Haver's USECON database. More detailed data is in the PPI and in the PPIR databases.

Producer Price Index(%) February January December Y/Y 2009 2008 2007
Finished Goods -0.6 1.4 0.4 4.6 -2.5 6.4 3.9
  Less Food & Energy 0.1 0.3 0.0 0.9 2.6 3.4 2.0
Intermediate Goods 0.1 1.7 0.6 5.8 -8.4 10.3 4.0
  Less Food & Energy 0.9 0.5 0.5 2.8 -4.2 7.4 2.8
Crude Goods -3.5 9.6 0.8 28.6 -30.4 21.4 11.9
  Less Food & Energy -0.6 6.6 4.5 34.9 -23.5 14.8 15.6
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