Producer Prices Jump With Higher Energy Costs; Core Prices Are Tame

The August producer price index for finished goods turned in its strongest gain since March with a 0.4% increase following a 0.2% July rise. Nevertheless, the y/y increase eased to 3.0% since the comparison was to strong gains this time last year. The monthly rise was slightly above Consensus expectations for 0.3%. Strength in the overall m/m readings did not, however, apply to core pricing power. The PPI less food & energy inched up an expected 0.1% but the y/y gain of 1.3% was nearly double that of last October.

Strength in finished energy prices was behind the elevated August increase. A 2.2% gain was driven by a 1.7% increase in gasoline prices (7.0% y/y) and a 5.7% rise (12.2% y/y) in home heating oil costs. Natural gas prices inched up just 0.5% (5.3% y/y) and electricity costs rose 0.5% (5.0% y/y). Offsetting some of this strength was weakness in food prices which fell 0.3%. Lower fresh & dried vegetable prices led the decline with a 4.1% drop (+11.7% y/y) while beef prices fell 1.6% (+10.0% y/y) for the third consecutive month of decline. To the upside, pork prices jumped 1.9% (31.3% y/y) and dairy prices rose 0.9% (14.7% y/y). 

Core finished consumer goods prices inched up just 0.1% last month (1.9% y/y). That 12-month gain is down sharply from 3.0% last year and 3.8% in 2008. Weaker gains in apparel prices account for some of the deceleration while furniture prices also were weak. Passenger car and appliance prices actually fell. Capital equipment prices ticked up just 0.1% last month (0.4% y/y).

Intermediate goods pricing power improved, but by just a bit. The 0.3% August increase followed declines during the prior two months. Intermediate energy prices rose 1.3% but the y/y gain decelerated to a still-strong 8.2%. That strength was, however, accompanied by a lesser 0.9% (3.4% y/y) increase in food prices and a modest 0.1% gain in core-intermediate prices. Crude goods pricing also improved, but for different reasons. Last month's strong 2.3% increase reflected a 3.5% (16.6% y/y) jump in food prices. Crude energy prices ticked up just 0.5% (18.2% y/y) but that followed a 4.5% spike in July. Reflecting strength in the industrial sector, core crude prices also were quite firm and posted a 4.1% (21.1% y/y) jump. That reflected a 9.5% spike (28.0% y/y) in copper scrap prices and a 4.1% (34.0% y/y) jump in iron & steel scrap prices.

The PPI data are contained in Haver's USECON database, with further detail in PPI and PPIR.

How Ridged Are Producer Prices? from the Federal Reserve Bank of New York is available . here.