The producer price-final demand headline in December fell 0.2 percent, nearly reversing November's 0.3 percent increase which now, regrettably, looks like an upside outlier. Year-on-year, the headline is down 1.0 percent. The ex-gas ex-food core rate did rise, but only 0.1 percent while the year-on-year rate is down 2 tenths in the month to only plus 0.3 percent. The ex-gas ex-food ex-services headline is up 0.2 percent with the year-on-year rate unchanged, also at plus 0.3 percent.
Services are the disappointment in this report, up only 0.1 percent in the month following November's 0.5 percent bounce back that followed, however, two prior months of decline. Lack of price traction in services is a blow to Federal Reserve policy makers who are counting on improvement in domestic prices to offset ongoing contraction in fuel and commodity prices. Year-on-year, service prices are up only 0.4 percent.
Energy prices fell 3.4 percent in the month with the year-on-year rate at minus 16.2 percent. Food prices, which have been another source of weakness, fell 1.3 percent with the year-on-year rate at minus 5.2 percent. Two other areas of weakness are export prices, down 0.1 percent and 3.4 percent year-on-year, and also, in bad news for manufacturers, finished goods prices which fell 0.7 percent and are down 2.7 percent on the year. Construction prices, which have been a source of strength, were unchanged though up 1.8 percent on the year.
This report for November did show promise but not in December and it isn't a source of optimism going into the January price collapse for oil which, for WTI, is struggling to stay over $30 this morning. This along with yesterday's import & export price report will not boost confidence that inflation expectations are well anchored and that inflation itself moving higher. Watch next Wednesday for the consumer price report.
The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measures 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. Effective with the January 2014 PPI data release in February 2014, BLS transitioned from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. The headline PPI (for Final Demand) measures price changes for goods, services, and construction sold to final demand: personal consumption, capital investment, government purchases, and exports.
Why Investors Care