Producer Price Index: Wholesale Inflation Falls to 1.3% in October
Wholesale inflation rose less than expected in October as producer price growth slowed for the first time in four months. Here is the latest news release from the Bureau of Labor Statistics.
The producer price index for final demand was down 0.5% month-over-month, lower than the expected 0.1% increase. On a non-seasonally adjusted basis, this month's headline PPI decelerated to 1.3% year-over-year, down from last month's 2.2% yearly increase and below the forecast of 1.9%.
Core PPI (excluding food and energy) for final demand was unchanged from last month, lower than the expected 0.3% increase. On a non-seasonally adjusted basis, core PPI decelerated to 2.4% year-over-year from last month's 2.7% yearly increase and was below the forecast of 2.7%. This is the lowest level for core PPI since August 2020.
Below is a chart of the historical series with a callout to the most recent 12 months.
Producer Price Index: Finished Goods
The BLS shifted its focus to its new "final demand" series in 2014, a shift I 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 PPI for finished goods, which the BLS also includes in its monthly updates. We will see in a later overlay chart that the final demand and finished goods indexes are highly correlated.
The October PPI for finished goods was down 1.8% month-over-month seasonally adjusted, down from last month's 0.9% increase. On an annual basis, headline PPI for finished goods is currently at -0.4% year-over-year, down from 2.3% last month (seasonally adjusted).
Core PPI for finished goods is up 0.1% month-over-month, down from 0.2% last month. On an annual basis, core PPI for finished goods is currently at 3.2% year-over-year, down from last month's 3.4% increase. This marks the 14th consecutive month core PPI for finished goods has slowed and is the lowest annual reading since May 2021 (seasonally adjusted).
Producer Price Index (PPI) vs. Consumer Price Index (CPI)
Both PPI and CPI illustrate monthly price changes however, as their names suggest, the Producer Price Index measures price changes from the producer perspective whereas the Consumer Price Index measures price changes from the consumer perspective. PPI is thought to be a leading indicator of consumer inflation because, for the most part, when producers pay more for goods and services they are likely to pass along those higher costs to the consumer. With that being said, during the last recession producers were unable to pass along price increases, demonstrating the higher volatility of core PPI than core CPI.
The Fed has been in a tightening cycle to tackle high inflation, among other things. Inflation has eased over the last year but the threat of a resurgence hangs in the air and thus, the two big questions remain: "Will the Fed continue to raise rates?" and "Will there be a recession?".
The next Fed meeting will be held on December 12th-13th.
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