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Producer Price Index: A 0.1% MoM Fall in March

April 13, 2016

by Jill Mislinski

Today's release of the March Producer Price Index (PPI) for Final Demand came in at -0.1% month-over-month seasonally adjusted, up from -0.2% in February. It is at -0.1% year-over-year, down from 0.0% in February. Core Final Demand (less food and energy) came in at -0.1% MoM, down from 0.0% the previous month and is up 1.0% 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 fell 0.1 percent in March, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices decreased 0.2 percent in February and advanced 0.1 percent in January. On an unadjusted basis, the final demand index moved down 0.1 percent for the 12 months ended in March. (See table A.)

The decrease in the final demand index in March can be traced to prices for final demand services, which declined 0.2 percent. In contrast, prices for final demand goods rose 0.2 percent.

The index for final demand less foods, energy, and trade services was unchanged in March after four consecutive advances. For the 12 months ended in March, prices for final demand less foods, energy, and trade services rose 0.9 percent. 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 since mid-2014 in headline PPI is, of course, energy related — now off its interim low set in April of last year. 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.