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Producer Price Index: Tenth Consecutive Month of YoY Decline

November 13, 2015

by Jill Mislinski

Today's release of the October Producer Price Index (PPI) for Final Demand came in at -0.4% month-over-month seasonally adjusted, up from -0.5% in September. It is down -1.6% year-over-year, the tenth consecutive month of YoY shrinkage. Core Final Demand (less food and energy) came in at -0.3% MoM, down from 0.2% the previous month and is up 1.7% YoY.The forecasts were for 0.2% headline and 0.1% core.

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

The Producer Price Index for final demand decreased 0.4 percent in October, seasonally adjusted. Final demand prices moved down 0.5 percent in September and were unchanged in August. On an unadjusted basis, the final demand index fell 1.6 percent for the 12 months ended in October, a record 12-month decline for this index, which was introduced in November 2009.

In October, 70 percent of the decrease in the final demand index can be traced to prices for final demand services, which moved down 0.3 percent. The index for final demand goods declined 0.4 percent. More…

Finished Goods: Headline and Core

The BLS shifted its focus to its new "Final Demand" series in 2014, a shift we fully 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

The Headline Finished Goods for September came in at -0.3% MoM and is down -4.1% YoY. Core Finished Goods were down -0.3% MoM and up 1.7% YoY.

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 since mid-2014 in headline PPI is, of course, energy related -- now off its interim low set in April. Core PPI has remained relatively stable since early 2014.

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.