No Significant Price Pressures: PPI Underperforms Economists’ Expectations

The Producer Price Index (PPI) for final demand rose .2% in August vs an Econoday consensus expectation of 0.3%. Excluding food and energy, the PPI rose 0.1% vs an expectation of 0.2%.

by Mish

Neither Hurricane Harvey nor Irma impacted the report. Next month, they will.

In a report not affected by Hurricane Harvey, producer prices once again couldn’t live up to expectations, edging 0.2 percent higher in August vs Econoday’s consensus for 0.3 percent. Also 1 tenth below expectations is the core (less food & energy) which could manage only a 0.1 percent gain. This is the third month in a row that the core has missed the consensus.
At 0.2 percent is the less food, energy & trade services reading where the gain relative to the core reflects yet another weak showing for trade services which is a closely watched component that hasn’t posted a gain since May. Service industries showing special weakness in August are hotel services and securities/investment services.

The lack of pressure comes despite a 3.3 percent monthly jump in energy costs that however does not reflect Hurricane Harvey as the shock, as explained by the Bureau of Labor Statistics, hit too late in the month to be picked up in the report. Even before Harvey, wholesale gasoline prices surged 9.5 percent in the month. Offsetting the rise in energy is a drop in food, down 1.3 percent and reflecting wide declines through components.

Though energy costs are a major wildcard right now, this report speaks to what is a persistent lack of price pressures in the economy, in this case at the base of the economy. Today’s report won’t be firming up confidence for tomorrow’s consumer price report where a rebound, like that expected for this report, is the call.

Goods Up 0.5%, Services Up 0.1%

The BLS breaks things down a bit finer.

  • In August, the Producer Price Index for final demand advanced 0.2 percent, as the index for final demand goods climbed 0.5 percent and prices for final demand services inched up 0.1 percent.
  • The final demand index increased 2.4 percent for the 12 months ended in August.
  • Three-quarters of the August increase in final demand prices is attributable to the index for final demand goods.
  • Prices for final demand goods advanced 0.5 percent in August, the largest rise since moving up 0.5 percent in April. Most of the August increase can be traced to the index for final demand energy, which climbed 3.3 percent.
  • The index for final demand services edged up 0.1 percent in August after falling 0.2 percent in July. Over 70 percent of the increase can be traced to a 0.1-percent advance in the index for final demand services less trade, transportation, and warehousing.

The amazing thing about this report is the Econoday parrot did not moan about prices not rising enough.

Mike “Mish” Shedlock

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