U.S. PPI Fell Again; Core Pricing Power Eased

Last month U.S. finished producer prices fell 2.2%, about as they did during October when they were down 2.8%. Finished energy prices (-16.1% y/y) were down about as they were in October, by 11.2%. Gasoline prices led the decline with a one-third drop (-40.1% y/y).

Other oil based prices were down as well as home heating oil prices fell by one-quarter (-21.9% y/y). Natural gas prices fell for the fourth consecutive month but the 1.7% m/m decline left them still up 7.3% y/y. Bucking a steep downtrend residential electric power costs slipped 0.4% but they were up 6.5% y/y. (All of these energy price series are not seasonally adjusted.)

Finished consumer food prices were unchanged after their 0.2% drop during October. Strength in food prices still is evident in a 6.8% y/y gain led by a 18.5% rise in meat prices and a 10.1% rise in bakery product prices. Fresh & dried vegetable prices also were strong, up 12.1% y/y, but fruit prices fell 12.2%.

Less food & energy prices, the increase moderated to 0.1% after a 0.4% October rise. Consensus expectations were for a for a 0.1% uptick. The moderation follows four consecutive monthly increases between 0.4% and 0.6%. The y/y gain in the core PPI of 4.2% was near the strongest since late-1989. Prices of core finished consumer goods ticked up 0.1% (4.4% y/y), nearly the strongest since 1989. Durable consumer goods prices were unchanged (2.4% y/y). Appliance prices firmed and posted a 4.0% y/y rise following the 1.1% increase during 2007. Core nondurable goods prices also strengthened and rose 5.9% y/y, the fastest gain since early 1999. Prices for capital equipment also firmed. Though they ticked up just 0.1% last month, the 3.7% y/y gain is double the rise during last year and the strongest since 1989.

Intermediate goods prices fell 4.3% as energy prices dropped further. Excluding food & energy prices fell for the third consecutive month but the 2.3% m/m fall still left these prices up 6.4% y/y, more than double the increase last year.

The crude materials PPI was down sharply for the fourth straight month and the 12.5% decline about matched the earlier drops. Energy prices led the fall with an 18.7% (-28.8% y/y) drop. Crude food prices also were off 1.2% (-5.2% y/y). Less food & energy crude prices fell 20.4% with the drop in commodity prices.