June 2017 Producer Price Final Demand Year-Over-Year Inflation Moderates To 2.0%

The Producer Price Index year-over-year inflation marginally declined from 2.4 % to 2.0 %.

Analyst Opinion of Producer Prices

The Producer Price Index is now on a noticeable moderation cycle – with most components declining year-over-year. My only conclusion is that generally there is an overabundance of goods and services – despite the Fed’s insistence the USA is near full employment.

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 ratemoderated to 2.0 %,.

The market had been expecting (from Bloomberg):

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

The producer price inflation breakdown:

category month-over-month change year-over-year change final demand goods +0.1 %   final demand services +0.2 %   total final demand +0.1 % +2.0 % processed goods for intermediate demand -0.2 % +3.8 % unprocessed goods for intermediate demand +1.5 % +6.3 % services for intermediate demand +0.0 % +2.8 %

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 around 2.0 % YoY.