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Economy in Brief

U.S. PPI Slips With Lower Food & Energy Prices
by Tom Moeller May 18, 2010

Thanks to lower food & energy prices, the overall producer price index fell 0.1% last month (+5.4% y/y) following a 0.7% March increase. Consensus expectations had been for a 0.1% uptick. Nevertheless, the y/y gain in prices of 5.4% remained near the higlyhest since late-2008.

Finished energy prices fell 0.8% (+20.6% y/y) and reversed all of the March gain. A moderate gain in not seasonally adjusted monthly gasoline prices (52.7% y/y) was the third this year and home heating oil prices rose about as they did in March (48.5% y/y). Finally, natural gas prices continued lower (-2.5% y/y) but electricity prices rose (1.6% y/y).

A 0.2% slip (+4.9% y/y) in finished food prices last month followed the 2.4% March jump. The decline was greatest amongst fresh fruit (+17.3% y/y), vegetable (33.3% y/y) and egg prices (-20.8% y/y). Beef prices (16.0% y/y) were strong for the third straight month.

The 0.2% increase in finished producer prices less food & energy prices was the firmest since January and beat Consensus expectations for a 0.1% uptick. Nevertheless, the 1.0% y/y increase remained nearly the weakest since early-2004. Continuing to lose steam was the PPI for finished consumer goods less food & energy. It rose 0.2% and left the 1.5% y/y increase half the annual gains during the last two years. Finished durables prices ticked up 0.1% (0.4% y/y) while core finished consumer nondurable goods prices gained a modest 0.2% (2.4% y/y), nearly the weakest rise since early 2007. Capital equipment prices rose 0.2% (0.3% y/y) versus annual gains between 1.0% and 3.0% back to 2004.

Future pressure on finished goods prices may possibly stem from higher prices for intermediate goods. Their 0.8% increase raised the y/y gain to 8.5%. Core prices jumped 1.1% and the 5.6% y/y gain was the strongest since late-2008. The strength reflected increases in the price of copper & mill shapes, steel & aluminum.

Additional price pressure to come also may be evident in the 4.0% increase (49.7 y/y) in core crude materials producer prices. The jump was led by higher scrap copper prices which have nearly doubled and iron & steel scrap prices which have more than doubled.

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

Producer Price Index(%) April March February y/y 2009 2008 2007
Finished Goods -0.1 0.7 -0.6 5.4 -2.5 6.4 3.9
  Less Food & Energy 0.2 0.1 0.1 1.0 2.6 3.4 2.0
Intermediate Goods 0.8 0.6 0.1 8.5 -8.4 10.3 4.0
  Less Food & Energy 1.1 0.7 0.9 5.6 -4.2 7.4 2.8
Crude Goods -1.2 3.2 -3.5 28.9 -30.4 21.4 11.9
  Less Food & Energy 4.0 6.0 -0.6 49.7 -23.5 14.8 15.6
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