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Economy in Brief

U.S. Producer Prices Moderate Slightly in September
by Sandy Batten  October 14, 2021

• Monthly increase slowed but y/y increase set a new record for headline series.

• Increase in goods prices accelerated while services price rise slowed.

• Inflation may be becoming a little more broadly based.

The Producer Price Index for Final Demand rose 0.5% m/m (8.6% y/y) in September following a 0.7% m/m (8.3% y/y) gain in August. The year-to-year increase is the largest in the series history, dating back to 2009. A 0.6% rise for last month had been expected by the Action Economics Forecast Survey. The PPI excluding food and energy prices rose 0.2% m/m (6.8% y/y), down from a 0.6% m/m (6.7% y/y) gain in August. A 0.5% increase had been expected. The PPI less prices of food, energy and trade services edged up 0.1% m/m (5.9% y/y) versus 0.3% (6.3% y/y) in August. This was the smallest monthly increase in this new "core" measure since May 2020.

The rise in prices for final demand goods accelerated to 1.3% m/m (13.3% y/y) in September versus a 1.0% m/m (12.6% y/y) increase in August. This was the largest y/y rise in the series history. Final demand goods prices less prices of foods and energy rose 0.6% (8.3% y/y) in September, the same monthly gain as in August. The Bureau of Labor Statistics estimated that nearly 80% of the September increase in the headline index can be attributed to the increase in goods prices. Prices of both energy and food soared in September—food up 2.0% m/m (12.9% y/y) and energy up 2.8% m/m (36.3% y/y) with meaningful monthly increases in all energy components (led by a 3.9% m/m rise in gasoline prices).

By contrast, final demand services prices rose a more moderate 0.2% m/m (6.4% y/y) in September following a 0.7% m/m increase in August. This was the smallest monthly rise since December 2020. The moderation was led by a record 16.7% m/m drop in airfares. Offsetting this were meaningful monthly gains in both retail and wholesale trade services margins. Retail margins increased 0.5% m/m (10.9% y/y) and wholesale margins rose 1.5% m/m (11.7% y/y), by far a record increase. To be sure, the margins data in this report are often difficult to interpret. Still, in a rising input cost world, that firms at both the retail and wholesale level were able to expand their margins meaningfully could indicate that firms have more pricing power than previously thought and furthermore that inflation pressures may be broadening.

The monthly rise in construction costs slowed to 0.1% m/m (5.2% y/y) in September from a 0.2% m/m (5.0% y/y) gain in August.

The PPI data are published by the Bureau of Labor Statistics and can be found in Haver's USECON database. Further detail is contained in PPI and PPIR. The expectations figures are available in the AS1REPNA database.

Producer Price Index (SA, %) Sep Aug Jul Sep Y/Y 2020 2019 2018
Final Demand 0.5 0.7 1.0 8.6 0.2 1.7 2.9
   Excluding Food & Energy 0.2 0.6 1.0 6.8 0.9 2.1 2.6
   Excluding Food, Energy & Trade Services 0.1 0.3 0.9 5.9 0.7 2.0 2.8
   Goods 1.3 1.0 0.6 13.3 -1.4 0.4 3.4
      Foods 2.0 2.9 -2.1 12.9 1.3 1.9 0.2
      Energy 2.8 0.4 2.6 36.3 -12.8 -4.6 10.2
    Goods Excluding Food & Energy 0.6 0.6 1.0 8.3 0.7 1.4 2.5
   Services 0.2 0.7 1.1 6.4 0.9 2.3 2.6
      Trade Services 0.9 1.5 1.7 9.7 1.7 2.4 1.8
   Construction 0.1 0.2 1.5 5.2 2.3 5.0 4.1
Intermediate Demand - Processed Goods 1.3 1.0 1.7 23.9 -2.8 -1.4 5.3
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