December 2017 Producer Price Final Demand Year-Over-Year Inflation Moderated

The Producer Price Index year-over-year inflation declined from 3.1 % to 2.6 %. 

Analyst Opinion of Producer Prices

The Producer Price Index moderated year-over-year. Here is what the BLS said in part:

Most of the December decline in the final demand index is attributable to a 0.2-percent decrease in prices for final demand services. The index for final demand goods was unchanged.

The decline in the Producer Price Index was not expected – and reverses last month’s unexpected gain.

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

The market had been expecting (from Bloomberg):

month over month change Consensus Range Consensus Actual PPI-Final Demand (PPI-FD) -0.1 % to 0.5 % +0.2 % -0.1% PPI-FD less food & energy (core PPI) 0.1 % to 0.3 % +0.2 % +0.1 % PPI-FD less food, energy & trade services 0.2 % to 0.3 % +0.2 % +0.1 %

The producer price inflation breakdown:

category month-over-month change year-over-year change final demand goods +0.0 %   final demand services -0.2 %   total final demand -0.1 % +2.6 % processed goods for intermediate demand +0.5 % +5.1 % unprocessed goods for intermediate demand +2.1 % +5.2 % services for intermediate demand -0.1 % +2.9 %

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.

Percent Change Year-over-Year – Comparing PPI Finished Goods (blue line) to PPI Intermediate Goods (red line)

Econintersect has shown how pricing change moves from the PPI to the Consumer Price Index (CPI). This YoY change implies that the CPI, should continue to come in well below 2.0 % YoY.