U.S. PPI Fell Again, Core Pricing Power Strong Again

U.S. finished producer prices during October matched Consensus expectations and fell 2.8% following their 0.4% drop during September.

A 12.8% decline in energy prices (+5.5% y/y) was due to a 24.9% plunge in gasoline prices, but gasoline prices were still up 3.2% y/y. Additionally, home heating oil prices fell by 9.6% (+24.2% y/y). Natural gas prices fell for the third consecutive month but, again, a 5.9% gain left them still up 10.4% y/y. Residential electric power costs slipped 0.5% (+5.8% y/y).

Less food & energy, prices rose 0.4% for the second consecutive month and that compared to a Consensus expectation for a 0.1% uptick. Core pricing indeed has firmed. The y/y gain in the core PPI of 4.4% was the strongest since late-1989. Prices of core finished consumer goods rose 0.3% last month and that was enough to lift the y/y gain to 4.6%, its strongest since 1989. Durable consumer goods prices rose 0.4% (3.0% y/y) on the strength of higher furniture prices which increased 5.4% y/y after a 1.3% gain last year. Additionally, appliance prices firmed and posted a 2.9% y/y rise following the 1.1% increase during 2007. Core nondurable goods prices also strengthened and rose 0.3% last month. Their 5.8% y/y gain was the fastest since early 1999. Prices for capital equipment also firmed. A 0.5% rise during October was the second in a row and it raised the y/y rise to 4.4%, the strongest since 1989.

Finished consumer food prices reversed their September gain and fell 0.2%. However, they still have been strong. Rising 6.6% y/y food prices about matched last year's gain which was up from a 0.7% uptick during 2006. Meat prices have been firm as have been bakery product prices.

Intermediate goods prices fell 3.9% as energy prices dropped. However, excluding food & energy a 1.7% m/m fall still left these prices up 9.7% y/y which remained near the strongest since 1980.

The crude materials PPI crashed 18.6% (-1.4% y/y) due to a 24.9% drop in energy prices (-1.7% y/y). Crude food prices fell 11.1% and that was enough to lower the y/y gain to -1.3% y/y. Less food & energy crude prices fell 17.0% and that pushed the y/y gain into negative territory for the first time since 2005.

This morning's testimony by Fed Chairman Ben S. Bernanke is available here.