U.S. PPI Increases 0.3% Fueled By Food & Energy Prices

Inflationary pressures continued to be diffused last month by the weak economy, but they increased for those who eat or drive a car. The PPI for finished goods rose 0.3% during October following declines during two of the prior three months. The increase fell somewhat short of Consensus expectations for a 0.5% rise. Though the PPI continued to decline versus the year-ago level, the 1.9% drop is a moderation from the 6.4% y/y decline back in July. Much of that moderation is due to notably sharp price declines during last year's fourth quarter.

The increase in overall producer prices last month was led by a 1.6% (-2.5% y/y) rise in food & beverage prices which reflected the third monthly surge (NSA) in fruit & vegetable prices (15.2% y/y), a one-quarter spike in fresh & dry vegetable prices (-6.7% y/y) and higher dairy product prices (-11.3% y/y).  A 1.6% increase in finished energy prices added to that monthly pressure, though prices still were down 9.4% y/y. Here again, however, the y/y comparisons are similar to those for food & beverage prices. Though prices remained 9.4% lower than last year, the twelve-month comparison has moderated from -29.6% this past July as monthly price declines during last year's fourth quarter were notably sharp. Despite m/m increases, gasoline prices remained down 12.5% y/y, fuel oil prices were off by one-third and natural gas prices were 20.1% lower.

Excluding food & energy prices the PPI fell 0.6% during October. Not only was the decline the third in the last four months, the 0.7% y/y increase was the weakest since early-2004. The m/m decline in the core PPI contrasted with expectations for a 0.1% increase. The PPI for finished consumer goods less food & energy fell 0.5% yet gained 1.1% y/y. That was the weakest annual increase since July 2007. Finished durables prices cratered by 1.2% (0.0% y/y), and prices of core finished consumer nondurable goods rose a modest 0.2%. The 2.0% y/y increase was down from 5.9% as of last November. Capital equipment prices also reflected economic weakness and fell 0.7%, the third decline in the last four months. That pulled the y/y increase down to 0.1% after a 4.3% rise as of last December.

Prices for intermediate goods rose 0.3% due to higher energy prices. The increase contrasted, however, with a 0.2% decline in core prices. These were led by declines in textile, chemical & lumber prices. Intermediate food prices fell 0.2% (-8.4% y/y).  The crude materials PPI increased a sizable 5.4% due to the increase in energy prices though they still remained down by nearly one-quarter from last October. In contrast, core prices showed strength and increased for the seventh straight month reflecting the steady rise in commodity prices.

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

Short-Term Headline-Core Inflation Dynamics from the Federal Reserve Bank of Richmond is available here