August Producer Price Index: Little to No Change

Today's release of the August Producer Price Index (PPI) for Final Demand came in at 0.0% month-over-month seasonally adjusted, up from last month's 0.4% drop in July. It is also at 0.0% year-over-year versus the -0.2% YoY last month. Core Final Demand (less food and energy) came in at 0.1% MoM, up from -0.3% the previous month and is up 1.0% YoY. MoM consensus forecasts were for 0.1% headline and 0.1% core.

Here is the summary of the news release on Final Demand:

The Producer Price Index for final demand was unchanged in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices declined 0.4 percent in July and rose 0.5 percent in June. On an unadjusted basis, the final demand index was unchanged for the 12 months ended in August. (See table A.)

In August, a 0.1-percent advance in the index for final demand services offset a 0.4-percent decrease in prices for final demand goods.

Prices for final demand less foods, energy, and trade services increased 0.3 percent in August after no change in July. For the 12 months ended in August, the index for final demand less
foods, energy, and trade services moved up 1.2 percent, the largest rise since climbing 1.3 percent for the 12 months ended December 2014. More…

Finished Goods: Headline and Core

The BLS shifted its focus to its new "Final Demand" series in 2014, a shift we support. However, the data for these series are only constructed back to November 2009 for Headline and April 2010 for Core. Since our focus is on longer term trends, we continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates.

As this overlay illustrates, the Final Demand and Finished Goods indexes are highly correlated.

Final Demand vs. Finished Goods
FRED® Graphs ©Federal Reserve Bank of St. Louis. All rights reserved.

Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. The plunge that began in mid-2014 in headline PPI is, of course, energy related. It is now off its interim low set in April of last year. Year-over-year Core PPI, now at 1.1%, has trended lower from its 2.3% interim high set the middle of last year.

Producer Price Index

As the next chart shows, the Core Producer Price Index is far more volatile than the Core Consumer Price Index. For example, during the last recession producers were unable to pass cost increases to the consumer.

PPI CPI Core Comparison

Check back next month for a new update.