Econoday Economic Report: Producer Price Index July 14, 2009

Resource Center » Event Release Dates | Event Definitions | Today's Calendar

Producer Price Index

Released On 7/14/2009 8:30:00 AM For Jun, 2009

	Prior	Consensus	Consensus Range	Actual
PPI - M/M change	0.2 %	0.8 %	0.1 % to 1.2 %	1.8 %
PPI -Yr/Yr change				-4.7 %
PPI less food & energy - M/M change	-0.1 %	0.1 %	-0.2 % to 0.7 %	0.5 %
PPI less food & energy - Yr/Yr change				3.4 %

Highlights
Producer price inflation in June jumped sharply at the headline level due to higher energy costs. The core also was high and largely due to higher motor vehicle prices. The overall PPI spiked 1.8 percent in June, after increasing 0.2 percent in May. The boost in June was sharply above the consensus forecast for a 0.8 percent hike in the headline PPI. The latest gain was led by the energy component which jumped 6.6 percent. The food component also posted a large gain-1.1 percent. Meanwhile the core PPI rate advanced 0.5 percent, coming in much higher than 0.1 percent decline in May. The latest number was stronger than the market expectation for a 0.1 percent gain.

Boosting the core rate were a 2.0 percent jump in auto prices and a 3.4 percent surge in light truck prices.

For the overall PPI, the year-on-year rate fell to minus 4.3 percent from minus 4.7 percent in May (seasonally adjusted). The core rate year-ago pace firmed to up 3.4 percent from up 3.0 percent the prior month.

The latest PPI report was quite strong but largely due to temporary factors. Energy is now in retreat and the spike in auto and light truck prices will not continue. The June PPI is an aberration in the current inflation trend. Bond yields, however, are likely to firm. Stocks are focused on earnings with Goldman Sachs sharply beating estimates before open. Also, retail sales were a little better than expected.

Market Consensus before announcement
The producer price index inflation rate eased to a 0.2 percent gain, after rising 0.3 percent in April. 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. The core PPI rate posted a 0.1 percent decrease in May, following a 0.1 percent uptick the month before. June will likely see a boost in the headline number on higher energy costs.

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