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Economy in Brief

U.S. Producer Prices Decline For Third Month, Again With Lower Food & Energy Costs
by Tom Moeller July 15, 2010

Pricing pressures at the wholesale level again diminished last month. A 0.5% decline in the June PPI was the third in a row that owed to consecutive declines in food & energy prices. The drop exceeded Consensus expectations for a 0.1% slip. As a result of the decline, the y/y gain in prices backpedaled to 2.7% from its March high of 6.1%.

Finished food prices fell 2.2%, the third consecutive monthly drop. Not seasonally adjusted, the latest decline was led by lower fresh & dried vegetable prices (-11.3 y/y) and lower fresh fruit prices (+5.0% y/y). Beef prices also declined m/m (+15.2% y/y) but dairy product prices rose (13.6% y/y). Finished energy prices fell for the fourth month in the last five but remained up 8.0% y/y. Not seasonally adjusted gasoline prices dropped 4.6% (+6.2% y/y) and home heating oil prices fell 6.1% (+14.4% y/y). Finally, natural gas prices rose (1.2% y/y) and electricity prices rose (3.2% y/y). 

Core pricing power diminished. The 0.1% increase in finished producer prices less food & energy was down from the 0.2% gains during the prior two months and matched Consensus expectations. Finished consumer goods prices less food & energy rose 0.2% leaving the 1.7% twelve-month increase nearly half the annual gains during the last two years. Finished durables prices fell 0.3% (-0.3% y/y) and reversed the May increase but core finished consumer nondurable goods prices strengthened with a 0.5% rise (3.2% y/y). Capital equipment prices were unchanged (0.3% y/y) versus annual gains between 1.0% and 3.0% back to 2004.

Earlier strength in intermediate goods prices diminished last month and they fell 0.9% (+6.3% y/y). Core pricing power also lagged with a 0.4% decline but prices remained up 5.4% y/y, nearly the strongest rise since late-2008. The strength continued to reflect increases in the prices of steel (30.5% y/y), copper (13.4% y/y) and plywood (15.5% y/y).

Price pressures fell last month at the earliest stage of processing. Crude materials prices fell 2.4% along with a 4.8% decline in core prices. The decline was led by lower scrap copper (+27.2% y/y) and lower iron & steel scrap (82.1% y/y) prices.

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

Minutes of the Federal Open Market Committee for June 22-23, 2010 can be found here.

Producer Price Index (%) June May April June Y/Y 2009 2008 2007
Finished Goods -0.5 -0.3 -0.1 2.7 -2.5 6.4 3.9
  Less Food & Energy 0.1 0.2 0.2 1.0 2.6 3.4 2.0
Intermediate Goods -0.9 0.4 0.8 6.3 -8.4 10.3 4.0
  Less Food & Energy -0.4 0.3 1.1 5.4 -4.2 7.4 2.8
Crude Goods -2.4 -2.8 -1.2 13.7 -30.3 21.4 11.9
  Less Food & Energy -4.8 -1.6 4.0 30.4 -23.5 14.8 15.6
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