February 2017 Producer Price Final Demand Year-over-Year Inflation Jumps To 2.2%

The Producer Price Index year-over-year inflation jumped from 1.6 % to 2.2 %. This inflation cycle began in the 2H2016.

Analyst Opinion of Producer Prices

After last month’s pause in inflation, it has returned with a vengance this month. From the BLS:

On an unadjusted basis, the final demand index climbed 2.2 percent for the 12 months ended February 2017, the largest advance since a 2.4-percent increase in the 12 months ended March 2012…..

In February, over 80 percent of the advance in the final demand index is attributable to a 0.4-percent increase in prices for final demand services.

The PPI represents inflation pressure (or lack thereof) that migrates into consumer price.

The BLS reported that the headline Producer Price Index (PPI) finished goods prices (now called final demand prices) year-over-year inflation rate jumped to 2.2 %,.

The market had been expecting (from Bloomberg):

month over month change Consensus Range Consensus Actual PPI-Final Demand (PPI-FD) -0.1 % to 0.3 % +0.1 % +0.3 % PPI-FD less food & energy (core PPI) 0.0 % to 0.3 % +0.2 % +0.1 % PPI-FD less food, energy & trade services 0.2 % to 0.3 % +0.3 % +0.3 %

The producer price inflation breakdown:

category month-over-month change year-over-year change final demand goods +0.3 %   final demand services +0.4 %   total final demand +0.3 % +2.2 % processed goods for intermediate demand +0.4 % +5.0 % unprocessed goods for intermediate demand -0.2 % +19.4 % services for intermediate demand +0.5 % +2.0 %

 

z ppi1.png

In the following graph, one can see the relationship between the year-over-year change in intermediate goods index and finished goods index. When the crude goods growth falls under finish goods – it usually drags finished goods lower.