Econoday Economic Report: Producer Price Index June 16, 2009

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Producer Price Index

Released On 6/16/2009 8:30:00 AM For May, 2009

	Prior	Consensus	Consensus Range	Actual
PPI - M/M change	0.3 %	0.7 %	0.1 % to 0.8 %	0.2 %
PPI less food & energy - M/M change	0.1 %	0.1 %	0.1 % to 0.2 %	-0.1 %

Highlights
Producer price inflation in May came in much tamer than expected-with the core index actually falling. The overall PPI eased to a 0.2 percent gain, after rising 0.3 percent in April. The May increase sharply fell short of market expectations for a 0.7 percent increase in the headline PPI. Behind the slowing was a 1.6 percent drop in food prices after a 1.5 percent surge in April. Meanwhile, energy actually rebounded 2.9 percent, following a 0.1 percent dip in April. The core PPI rate posted a 0.1 percent decrease in May, following a 0.1 percent uptick the month before. The latest figure came in below the consensus projections for a 0.1 percent increase.

Helping the core rate to decline were decreases in prices for pharmaceutical preparations; perfume, cologne, & toilet water; and household laundry equipment. Prices for light trucks were flat while those for passenger cars edged up 0.1 percent.

For the overall PPI, the year-on-year rate fell to minus 4.7 percent from minus 3.5 percent in April (seasonally adjusted). The core rate year-ago pace slowed to up 3.0 percent from up 3.4 percent the month before.

The May PPI report showed several cross currents but the bottom line is that inflation currently is moderate. Energy is still a looming problem, but not today given other offsets. The bond markets will like today's report.

Market Consensus before announcement
The producer price index in April made a comeback as the overall PPI rebounded 0.3 percent, after falling 1.2 percent in March. The boost was led by 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. For May, rising oil prices could lead to another boost in the headline PPI. However, discounting-including for autos-could pull down 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