Producer Price Index: A January Monthly Increase, But Negative YoY for the 13th Month

inflationDoug Short:   Today’s release of the January Producer Price Index (PPI) for Final Demand came in at 0.1% month-over-month seasonally adjusted, up from -0.2% in December. It is down -0.2% year-over-year, the 13th consecutive month of YoY shrinkage. Core Final Demand (less food and energy) came in at 0.4% MoM, up from 0.2% the previous month and is up 0.6% YoY. The forecasts were for 0.1% headline and 0.4% core.

Here is the summary of the news release on Final Demand:

The Producer Price Index for final demand advanced 0.1 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices decreased 0.2 percent in December and advanced 0.4 percent in November. On an unadjusted basis, the final demand index declined 0.2 percent for the 12 months ended in January….

The increase in the final demand index for January can be traced to a 0.5-percent advance in prices for final demand services. In contrast, the index for final demand goods moved down 0.7 percent.

In January, the index for final demand less foods, energy, and trade services advanced 0.2 percent for the second consecutive month. For the 12 months ended in January, prices for final demand less foods, energy, and trade services climbed 0.8 percent. More…

Finished Goods: Headline and Core

The BLS shifted its focus to its new “Final Demand” series in 2014, a shift we support. However, the data for these series are only constructed back to November 2009 for Headline and April 2010 for Core. Since our focus is on longer term trends, we continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates.

As this overlay illustrates, the Final Demand and Finished Goods indexes are highly correlated.

Final Demand vs. Finished Goods

FRED® Graphs ©Federal Reserve Bank of St. Louis. All rights reserved.

Now let’s visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. The plunge since mid-2014 in headline PPI is, of course, energy related — now off its interim low set in April of last year. Core PPI has remained relatively stable since early 2014.

Producer Price Index

As the next chart shows, the Core Producer Price Index is far more volatile than the Core Consumer Price Index.

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