August 10, 2017 – The Producer Price Index (PPI) looks at the average change in selling prices from the viewpoint of domestic producers of both goods and services. Three areas of production are observed: industry-based, commodity-based and commodity-based final demand-intermediate demand.
The Producer Price Index (Final Demand) edged down 0.1% in July, below expectations of a 0.1% increase. The PPI is now up 1.9% year-over-year, while Core PPI, which excludes food and energy, is up 1.8% year-over-year, while Core PPI also decreased 0.1% in July and did not meet expectations of 0.2% growth. Trade services were down 0.5%. Transportation and warehousing lead in the largest decline this month with a 0.8% decrease; while food remained unchanged month-over-month.
PPI had weak growth in June, relatively close to expectations but July deflation was contrary to the consensus. This hiccup in growth is growing more concerns about the Fed’s plan to start unwinding the balance sheet. The PPI chart makes it clear that the Producer Price Index is not exceptionally volatile; however, there are volatile components such as energy and food prices. Our main focus is on Core PPI since it does not include these highly volatile prices. Core PPI rose just under 2% year-over-year in July and supports the weaker inflation expectations in CPI. After oil prices caused PPI to drop in 2014 it has steadily risen and we expect this trend to continue moving forward.