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Producer Price Index Remains Negative Year-over-Year

August 14, 2015

by Doug Short

Today's release of the July Producer Price Index (PPI) for Final Demand came in at 0.2% month-over-month seasonally adjusted. That follows the previous month's 0.4% increase. Core Final Demand (less food and energy) came in at 0.3% month-over-month following a 0.3% change the month before. The Investing.com forecasts were for 0.1% headline and 0.1% core.

The year-over-year change in seasonally adjusted Final Demand is -0.8%, down from last month's -0.7% but off its record low of -1.3% in April.

Here is the summary of the news release on Finished Goods:

The Producer Price Index for final demand advanced 0.2 percent in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.4 percent in June and 0.5 percent in May. On an unadjusted basis, the final demand index moved down 0.8 percent for the 12 months ended in July, the sixth straight 12-month decline.

In July, the increase in the final demand index can be traced to prices for final demand services, which climbed 0.4 percent. In contrast, the index for final demand goods edged down 0.1 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.

The Headline Finished Goods for July came in at -0.1% MoM but is down -2.5% YoY. Core Finished Goods were up 0.1% MoM and 2.2% 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.