Econoday Economic Report: Producer Price Index May 14, 2009

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Producer Price Index

Released On 5/14/2009 8:30:00 AM For Apr, 2009

	Prior	Consensus	Consensus Range	Actual
PPI - M/M change	-1.2 %	0.1 %	-0.4 % to 0.4 %	0.3 %
PPI -Yr/Yr change	-3.6 %			-3.5 %
PPI less food & energy - M/M change	0.0 %	0.1 %	0.1 % to 0.2 %	0.1 %
PPI less food & energy - Yr/Yr change	3.8 %			3.4 %

Highlights
Producer price inflation in April made a comeback – and this time it was not energy causing the price hike. The overall PPI rebounded 0.3 percent, after falling 1.2 percent in March. The April increase was above the market forecast for a 0.1 percent rise in the headline PPI. Leading the boost was a 1.5 percent jump in food prices, following two months of decline. Meanwhile, energy actually slipped 0.1 percent, following a 5.5 percent drop in March. The core PPI rate also firmed – to a 0.1 percent rise after no change in March. The core gain matched the consensus projection.

The 1.5 percent surge in food prices was led by a 43.7 spike in eggs prices with other foods also contributing to a lesser degree. The jump in egg prices was largely due to difficulty in seasonally adjusting egg prices around Easter. Energy costs inched down 0.1 percent despite a 2.6 percent jump in gasoline prices in April. Residential gas dropped 6.2 percent in the latest month while electricity slipped 0.6 percent.

Helping the core rate to firm were gains in prices for light trucks and passenger cars – up 1.1 percent and 0.2 percent, respectively.

For the overall PPI, the year-on-year rate rose to minus 3.5 percent in March from down 3.6 percent the month before (seasonally adjusted). The core rate year-ago pace eased to up 3.4 percent from up 3.8 percent in March.

The April PPI report brings into question how serious a deflation problem is – at least at the headline level. Certainly the monthly numbers have been a little volatile and quite a few components declined although the net impact were gains at the headline and core levels. If oil prices keep nudging upward, the Fed may have to tighten sooner than they currently think. On the margin, PPI inflation may not be as cool as the Fed would like at the headline level.

Market Consensus before announcement
The producer price index dropped a sizeable 1.2 percent in March after firming 0.1 percent in February. Pushing the headline number down was a 5.5 percent drop in energy costs along with a 0.7 percent fall in food costs. Meanwhile, the core PPI rate eased to no change after a 0.2 percent boost in February. Looking ahead, a firming in oil prices likely will boost the headline PPI for April although discounting by producers may cut into the core rate.

Definition
The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measure the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. The headline PPI (for finished goods) is a measure of the average price level for a fixed basket of capital and consumer goods for prices received by producers. Why Investors Care

It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the PPI are mainly volatile because of sharp fluctuations in food and energy prices. The core PPI eliminates the sharper fluctuations.
Data Source: Haver Analytics

Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core PPI does not fluctuate as much as the total PPI.
Data Source: Haver Analytics

2009 Release Schedule

Released On: 1/15 2/19 3/17 4/14 5/14 6/16 7/14 8/18 9/15 10/20 11/17 12/15

Release For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov