October PPI
Updated 19-Nov-09 19:27 ET
Highlights
- The producer price index rose 0.3% in October, well below the consensus expectation of an increase of 0.5%.
- Excluding food and energy prices, core PPI fell an astounding 0.6% over the month. For the year, core PPI has only increased 0.7% after posting a 1.4% year-over-year increase in September.
- Pipeline inflationary pressures remain in check.
- Intermediate prices increased 0.3% for the month while crude prices increased 5.2%.
Key Factors
- On the surface, the numbers would suggest an increasingly deflationary environment. However, the data for October was skewed.
- The decline in core prices was due to large drops in vehicle prices. Passenger car prices declined 0.5% month-over-month after increasing 1.0%. Light truck prices fell 5.2% and heavy trucks prices declined 0.1%.
- The information on the decline in motor vehicle prices is sketchy. New 2010 model year vehicle prices were introduced in this month's PPI report. The drop in price would suggest that car manufacturers are planning on introducing new model vehicles at lower price points. If this hold true, prices should hold at these levels through next summer.
- Outside of motor vehicle prices, core producer prices would have increased over the month.
- The crude price increase may seem large, but it was mostly due to higher food (5.2%) and energy (8.3%) costs. Core crude prices only increased 0.5% in October.
- Please note, the PPI report does not provide a strong indicator on tomorrow's CPI data and should not be used as the primary forecasting tool.
Big Picture
- PPI trends were highly volatile in 2008, mirroring the trends in global oil prices. Falling global commodity prices and weak economic demand will keep inflation in check at the producer level. If global economies remain weak in 2009, as is widely expected, inflation at the producer level will be insignificant. There may even be concerns about global deflation.
| Category |
OCT |
SEP |
AUG |
JUL |
JUN |
| Finished Goods |
0.3% |
-0.6% |
1.7% |
-0.9% |
1.8% |
| Core |
-0.6% |
-0.1% |
0.2% |
-0.1% |
0.5% |
| Capital Equipment |
-0.7% |
-0.1% |
0.3% |
-0.2% |
0.5% |
| Consumer Foods |
1.6% |
-0.1% |
0.4% |
-1.1% |
1.1% |
| Energy |
1.6% |
-2.4% |
8.0% |
-2.4% |
6.6% |
| Intermediate Materials |
0.3% |
0.2% |
1.8% |
-0.2% |
1.9% |
| Core |
-0.2% |
0.9% |
0.6% |
0.2% |
0.4% |
| Crude Materials |
5.4% |
-2.1% |
3.8% |
-4.5% |
4.6% |
| Core |
0.5% |
3.6% |
6.0% |
2.9% |
2.6% |
