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Economy in Brief

U.S. PPI Declines For Second Month With Lower Food & Energy Prices
by Tom Moeller June 16, 2010

Pricing pressures continued to ease last month. Thanks to lower food & energy prices, the May producer price index fell 0.3% (+5.1% y/y) after a 0.1% April slip. Consensus expectations had been for a 0.5% decline. Nevertheless, the y/y gain in prices of 5.1% remained the highest since October 2008.

Finished energy prices fell 1.5% (+16.7% y/y) after a 0.8% April decline. Not seasonally adjusted gasoline prices slipped in May (+31.2% y/y) and home heating oil prices reversed most of their April increase (+44.8% y/y). Finally, natural gas prices fell for the third straight month (+0.7% y/y) but electricity prices rose (2.0% y/y).   

Finished food prices slipped for the second consecutive month (+5.7% y/y) led by lower vegetable (+38.1% y/y) and egg prices (+3.8% y/y). These declines were countered by higher beef prices (14.5% y/y) which were strong for the fourth straight month.   

The second consecutive 0.2% increase in finished producer prices less food & energy prices beat Consensus expectations for a 0.1% uptick. Still, the 1.3% y/y increase remained the weakest since October 2006. Finished consumer goods prices less food & energy rose 0.3%, still leaving the 1.9% y/y increase nearly half the annual gains during the last two years. Finished durables prices rose 0.3% (0.6% y/y) while core finished consumer nondurable goods prices rose an increased 0.4% (2.8% y/y). Capital equipment price inflation remained tame (0.6% y/y) versus annual gains between 1.0% and 3.0% back to 2004.

Intermediate goods prices continued firm with a 0.4% gain (8.4% y/y). Core prices rose a diminished 0.3% but the 6.1% y/y gain was the strongest since October 2008. The strength continued to reflect increases in the price of steel (32.4% y/y) & aluminum (16.1% y/y).

Price pressures eased last month at the earliest stage of processing. Crude materials prices fell 2.8% along with a 1.6% decline in core prices. The decline was led by lower scrap copper prices and lower iron & steel scrap prices, but they have doubled y/y.

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(%) May April March May y/y 2009 2008 2007
Finished Goods -0.3 -0.1 0.7 5.1 -2.5 6.4 3.9
Less Food & Energy 0.2 0.2 0.1 1.3 2.6 3.4 2.0
Intermediate Goods 0.4 0.8 0.6 8.4 -8.4 10.3 4.0
  Less Food & Energy 0.3 1.1 0.7 6.1 -4.2 7.4 2.8
Crude Goods -2.8 -1.2 3.2 21.5 -30.3 21.4 11.9
Less Food & Energy -1.6 4.0 6.0 41.2 -23.5 14.8 15.6
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