ACTIONABLE ADVICE FOR FINANCIAL ADVISORS: Newsletters and Commentaries Focused on Investment Strategy

Follow us on

Content Channels

Most Popular This Month

Most Popular This Year

Producer Price Index: A Rise in May

June 15, 2016

by Doug Short

Today's release of the May Producer Price Index (PPI) for Final Demand came in at 0.5% month-over-month seasonally adjusted, up from a revised from 0.2% in April. It is at -2.2% year-over-year, down from -1.3% in the previous month. Core Final Demand (less food and energy) came in at 0.1% MoM, down from 0.2% the previous month but is up 1.6% YoY. The Investing.com forecasts were for 0.3% headline and 0.1% core.

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

The Producer Price Index for final demand increased 0.4 percent in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.2 percent in April and declined 0.1 percent in March. On an unadjusted basis, the final demand index inched down 0.1 percent for the 12 months ended in May. (See table A.)

In May, over 60 percent of the advance in the final demand index can be traced to prices for final demand goods, which climbed 0.7 percent. The index for final demand services moved up 0.2 percent.

Prices for final demand less foods, energy, and trade services edged down 0.1 percent in May after rising 0.3 percent in April. For the 12 months ended in May, the index for final demand less foods, energy, and trade services increased 0.8 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 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 1.6%, 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.