Producer Prices Up 0.3% in December, Unprocessed Goods Spike 8.3%

The seasonally adjusted Producer Price Index (PPI) for final demand rose 0.3% in December as prices for finished wholesale goods increased 0.7%, while margins of final services providers increased by 0.1%.  This followed a November report that indicated the overall PPI had increased 0.4%, with prices for finished goods up 0.2% while final demand for services rose 0.5%, and an October report that indicated the PPI was unchanged, with prices for finished goods up 0.4% while final demand for services fell 0.3%.   Producer prices are now up 1.6% from a year ago, a figure which is now rapidly increasing, since most of the price decreases relating to lower oil and commodity prices went by the boards in early 2015.  While investors may follow this index as a leader of consumer inflation, its primary importance to us is as an adjustment for changes in price to metrics in other economic reports.  Other than personal consumption expenditures, imports, and exports, most other components of GDP, including all inventories, are deflated with components of this index. 

As noted, the price index for final demand for goods, aka 'finished goods', rose by 0.7% in December, after rising by 0.2% in November, 0.4% in October, 0.5% in September, but after falling by 0.4% in August, as the index for wholesale energy prices rose 2.6% from November to December while the price index for wholesale foods was 0.7% higher and the index for final demand for core wholesale goods (ex food and energy) rose 0.3%.  Major wholesale energy price increases in December included a 20.1% increase in wholesale prices for liquefied petroleum gas, a 9.6% increase for wholesale heat oil, and a 7.8% increase in wholesale gasoline prices, while among wholesale food prices, a 63.2% increase in the prices of eggs was partially offset by a 13.2% decrease for fresh fruits and melons.  Among wholesale core goods, prices for passenger cars increased 1.1%, prices for light trucks rose 1.3%, while wholesale prices for appliances were down 1.1%.

Meanwhile, the index for final demand for services rose by 0.1% in December after rising 0.5% in November and falling by 0.3% in October, as the index for final demand for trade services rose 0.2%, the index for final demand for transportation and warehousing services fell 0.4% and the index for final demand for services less trade, transportation, and warehousing services was 0.2% higher.  Among trade services, seasonally adjusted margins for TV, video, and photographic equipment retailers increased 6.3% after rising 6.0% in November, margins for paper and plastics products wholesalers increased 4.6%, and margins for major household appliances retailers increased 2.4%, while margins for fuels and lubricants retailers fell 13.4%..  Among transportation and warehousing services, margins for airline passenger services fell 2.4% and margins for air transport of freight fell 0.4% while all other transportation and warehousing services were higher.  In the core final demand for services index, margins for securities brokerage, dealing, and investment advisers rose 4.4%, margins for passenger car rentals were 5.7% higher, while margins for vehicle rental and lodging arrangement were 1.8% lower.

This report also showed the price index for processed goods for intermediate demand was 0.5% higher, after rising 0.3% in both October and November and by a revised 0.4% in September. Prices for intermediate processed goods are now 1.8% higher than in December a year ago, only the second year over year increase after 16 months of lower year over year comparisons, as intermediate goods prices fell every month from July 2015 through March 2016.  In December, the price index for intermediate energy goods rose 2.1% and prices for intermediate processed foods and feeds rose 0.8%, while the core price index for processed goods for intermediate demand less food and energy was just 0.1% higher, despite a 13.1% increase in intermediate wholesale prices for asphalt.

At the same time, the price index for intermediate unprocessed goods rose 8.3% in December, the largest increase since a 9.0% jump in February 2007, after being unchanged in November, and falling a 0.6% in October, 0.7% in September, and 2.0% in August.   The index for crude energy goods rose 14.6% as prices for crude oil rose 18.9%, the price index for unprocessed foodstuffs and feedstuffs was rose 5.8%, as the index for slaughter steers and heifers rose 29.2 percent and raw milk prices rose 19.2%.  Moreover, the index for core raw materials other than food and energy materials rose 3.6%, on an 15.0% increase in wholesale prices for iron and steel scrap.   This raw materials index is now up 13.2% from year ago, in contrast to its maximum year over year decrease of 26.4% that was seen 13 months ago, in November of 2015.

Lastly, the price index for services for intermediate demand was 0.4% higher in December, after being 0.2% higher in November, 0.6% lower in October, 0.4% higher in September, and being unchanged in August.  The index for trade services for intermediate demand was 1.1% higher as margins for intermediate paper and plastics products wholesalers rose 4.6% and margins for intermediate metals, minerals, and ores wholesalers rose 2.3%.  The index for transportation and warehousing services for intermediate demand was up 0.1%, as pricing for intermediate air mail and package delivery services rose 1.4%, while the intermediate index for transportation of passengers (partial) fell 2.4%…The core price index for services less trade, transportation, and warehousing for intermediate demand rose 0.4%, as a 9.0% increase in the index for prices for advertising space sales in newspapers accounted for much of the increase in intermediate services. Over the 12 months ended in November, the year over year price index for services for intermediate demand, which has never turned negative on an annual basis, is now 2.4% higher than it was a year ago...  

 

note: the above was excerpted from my weekly synopsis at MarketWatch 666

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there goes any income gains

Here comes inflation to eat up any gains in wages and income. It is good you are covering oil. Has to be *the* biggest factor in prices and even the economy, yet almost no one on economic sites talks about it.

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