Producer Price Index: A Slight Decrease In December

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January 15, 2016 4:08pm NYSE:DIA NYSE:SPY

inflationJill Mislinski:  Today’s release of the December Producer Price Index (PPI) for Final Demand came in at -0.2% month-over-month seasonally adjusted, down from 0.3% in November. It is down -1.0% year-over-year, the twelfth consecutive month of YoY shrinkage.

Core Final Demand (less food and energy) came in at 0.1% MoM, down from 0.3% the previous month and is up 0.3% 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 0.2 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices increased 0.3 percent in November and fell 0.4 percent in October. On an unadjusted basis, the final demand index fell 1.0 percent in 2015, after rising 0.9 percent in 2014. (See table A.)

In December, the decrease in the final demand index can be traced to a 0.7-percent decline in prices for final demand goods. In contrast, the index for final demand services moved up 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.

As this overlay illustrates, the Final Demand and Finished Goods indexes are highly correlated.

Final Demand vs. Finished Goods

The Headline Finished Goods for November came in at -0.8% MoM and is down -2.8% YoY. Core Finished Goods were up 0.3% MoM and up 1.9% 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.

This article is brought to you courtesy of Jill Mislinski from Advisor Perspectives.

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