| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| PPI-FD - M/M | 0.4% | 0.3% to 0.6% | 0.7% | 0.3% | 0.4% |
| PPI-FD - Y/Y | 1.3% | 1.3% to 1.4% | 1.6% | 0.8% | |
| Ex-Food & Energy - M/M | 0.2% | 0.0% to 0.3% | 0.2% | 0.3% | 0.4% |
| Ex-Food & Energy - Y/Y | 2.3% | 2.2% to 2.7% | 2.2% | 2.4% | |
| Ex-Food, Energy & Trade Services - M/M | 0.3% | 0.2% | 0.3% | ||
| Ex-Food, Energy & Trade Services - Y/Y | 3.0% | 2.7% | 2.9% |
Highlights
Producer prices rose faster than expected in August: they increased 0.7 percent on the month after 0.4 percent in July, and appreciated 1.6 percent year-over-year after 0.8 percent, topping Econoday's consensus estimates of 0.4 percent and 1.3 percent, respectively.
Excluding food and energy, the PPI-final demand was up 0.2 percent on the month after 0.4 percent in July, as expected, and increased 2.2 percent year-over-year, slightly below the 2.3 percent consensus. When also excluding trade services, the PPI rose at a steady pace of 0.3 percent on the month and picked up to 3.0 percent from 2.9 percent year-over-year.
Food was down 0.5 percent on the month and energy surged 10.5 percent, including a 20 percent jump in gasoline. Overall, 80 percent of the monthly PPI gain was due to a 2.0 percent jump in goods prices, the largest since June 2022, led by energy. Services were up 0.2 percent with a notable 1.4 percent advance in transportation and warehousing.
On a 12-month basis, after three consecutive declines, goods prices rebounded 0.5 percent year-over-year in August. Services were up 2.2 percent, down from 2.5 percent in July. Energy fell 2.8 percent from a year earlier, and both food and trade services fell 0.7 percent.
Just like the CPI, today's PPI report was strongly impacted by soaring energy prices on the month. On a 12-month basis, the slowdown in the index excluding food and energy was a welcome development, although PPI gains failed to slow when also excluding trade, which will keep the Fed on its toes.
At the retail level, the CPI rose 3.7 percent year-over-year in August, up from 3.2 percent in July. However, core inflation slowed to 4.3 percent from 4.7 percent. Services less rent of shelter, which roughly tracks non-housing service prices that the Fed is concerned about, also slowed on a 12-month basis to 3.1 percent from 3.3 percent.
Excluding food and energy, the PPI-final demand was up 0.2 percent on the month after 0.4 percent in July, as expected, and increased 2.2 percent year-over-year, slightly below the 2.3 percent consensus. When also excluding trade services, the PPI rose at a steady pace of 0.3 percent on the month and picked up to 3.0 percent from 2.9 percent year-over-year.
Food was down 0.5 percent on the month and energy surged 10.5 percent, including a 20 percent jump in gasoline. Overall, 80 percent of the monthly PPI gain was due to a 2.0 percent jump in goods prices, the largest since June 2022, led by energy. Services were up 0.2 percent with a notable 1.4 percent advance in transportation and warehousing.
On a 12-month basis, after three consecutive declines, goods prices rebounded 0.5 percent year-over-year in August. Services were up 2.2 percent, down from 2.5 percent in July. Energy fell 2.8 percent from a year earlier, and both food and trade services fell 0.7 percent.
Just like the CPI, today's PPI report was strongly impacted by soaring energy prices on the month. On a 12-month basis, the slowdown in the index excluding food and energy was a welcome development, although PPI gains failed to slow when also excluding trade, which will keep the Fed on its toes.
At the retail level, the CPI rose 3.7 percent year-over-year in August, up from 3.2 percent in July. However, core inflation slowed to 4.3 percent from 4.7 percent. Services less rent of shelter, which roughly tracks non-housing service prices that the Fed is concerned about, also slowed on a 12-month basis to 3.1 percent from 3.3 percent.
Market Consensus Before Announcement
Producer prices in August are expected to rise 0.4 percent on the month versus a 0.3 percent increase in July. The annual rate in August is seen at 1.3 percent versus July's 0.8 percent rate. August's ex-food ex-energy rate is seen at 0.2 percent versus July's 0.3 percent with the annual rate down 1 tenth to 2.3 percent.
Definition
The Producer Price Index (PPI) of the Bureau of Labor Statistics (BLS) is a family of indexes that measures the average change over time in the prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. Effective with the January 2014 PPI data release in February 2014, BLS transitioned from the Stage of Processing (SOP) to the Final Demand-Intermediate Demand (FD-ID) aggregation system. The headline PPI (for Final Demand) measures price changes for goods, services, and construction sold to final demand: personal consumption, capital investment, government purchases, and exports.
Description
The PPI measures prices at the producer level before they are passed along to final consumers. A portion of the inflation at the producer level gets passed through to the consumer price index (CPI). By tracking price pressures in the pipeline, investors can anticipate inflationary consequences in coming months.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
While the CPI is the price index with the most impact in setting interest rates, the PPI provides significant information earlier in the production process. As a starting point, interest rates have an"inflation premium" and components for risk factors. A lender will want the money paid back from a loan to at least have the same purchasing power as when loaned. The interest rate at a minimum equals the inflation rate to maintain purchasing power and this generally is based on the CPI. Changes in inflation lead to changes in interest rates and, in turn, in equity prices.
The PPI comes in two key main versions: final demand (FD) and intermediate demand (ID). The final demand portion is composed of six main price indexes: final demand goods; final demand trade services; final demand transportation and warehousing services; final demand services less trade, transportation, and warehousing; final demand construction; and overall final demand.
The intermediate demand portion of the FD-ID system tracks price changes for goods, services, and construction products sold to businesses as inputs to production, excluding capital investment. There are two parallel treatments of intermediate demand, each constructed from the identical set of commodity price indexes. The first treatment organizes commodities according to commodity type, and the second organizes commodities using a stage-based, production flow model.
The PPI is considered a precursor of both consumer price inflation and profits. If the prices paid to producers increase, businesses are faced with either charging higher prices or taking a cut in profits. The ability to pass along price increases depends on the strength and competitiveness of the marketplace.
Under the prior PPI system, the producer price index was substantially more volatile than the consumer price index because the CPI included services while the PPI did not. Volatility has been reduced substantially in the PPI-FD due to the inclusion of services but the PPI still is more volatile than the CPI. Wages are a bigger share of the costs at the retail level than at the producer level and this plays a role in the CPI’s lower volatility. Also, the PPI does not include owners’ equivalent rent—a large and slow moving component in the CPI. Food and energy prices are major sources of volatility in the PPI, hence, the greater focus on the"core PPI" which excludes these two components.
The bond market rallies when the PPI decreases or posts only small increases, but bond prices fall when the PPI posts larger-than-expected gains. The equity market rallies with the bond market because low inflation promises low interest rates and is good for profits.
