| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| PPI-FD - M/M | 0.3% | 0.2% to 0.5% | 0.5% | 0.7% | |
| PPI-FD - Y/Y | 1.7% | 1.6% to 1.8% | 2.2% | 1.6% | 2.0% |
| Ex-Food & Energy - M/M | 0.3% | 0.3% | 0.2% | ||
| Ex-Food & Energy - Y/Y | 2.1% | 2.1% to 2.2% | 2.7% | 2.2% | 2.5% |
| Ex-Food, Energy & Trade Services - M/M | 0.2% | 0.3% | 0.2% | ||
| Ex-Food, Energy & Trade Services - Y/Y | 2.8% | 3.0% | 2.9% |
Highlights
Producer prices again rose faster than expected in September, with the headline PPI up 0.5 percent on the month, down from 0.7 percent in August, and 2.2 percent year-over-year, up from an upwardly revised 2.0 percent the previous month, topping consensus expectations of 0.3 percent and 1.7 percent, respectively, in an Econoday survey. Excluding food and energy, producer prices increased 0.3 percent on the month and 2.7 percent year-over-year, also above expected. The core index, which also excludes trade services, was up 0.2 percent and 2.8 percent, respectively.
While the growth rates for the all-item PPI and the index excluding food and energy accelerated year-over-year, with the headline rate reaching its highest level since April 2023, the core measure also excluding trade services inched down from 2.9 to 2.8 percent, a likely meager consolation for the Fed. In fact, with today's report, Econoday's Relative Performance Index stands at 24, consistent with building tightening risk, which will keep both the Fed and markets anxious for tomorrow's CPI report.
Prices for final demand goods rose 0.9 percent on the month, most of it due to a 3.3 percent increase in energy driven by a 5.4 percent gain in gasoline. Goods prices increased 0.8 percent from a year earlier. Prices for final demand foods moved up 0.9 percent on the month and contracted 1.2 percent year-over-year.
Services were up 0.3 percent on the month, 60 percent of which due to a 0.3 percent advance in prices for services less trade, transportation, and warehousing. Trade services rose 0.5 percent while transportation and warehousing decreased 0.4 percent. Services prices increased 2.9 percent year-over-year.
While the growth rates for the all-item PPI and the index excluding food and energy accelerated year-over-year, with the headline rate reaching its highest level since April 2023, the core measure also excluding trade services inched down from 2.9 to 2.8 percent, a likely meager consolation for the Fed. In fact, with today's report, Econoday's Relative Performance Index stands at 24, consistent with building tightening risk, which will keep both the Fed and markets anxious for tomorrow's CPI report.
Prices for final demand goods rose 0.9 percent on the month, most of it due to a 3.3 percent increase in energy driven by a 5.4 percent gain in gasoline. Goods prices increased 0.8 percent from a year earlier. Prices for final demand foods moved up 0.9 percent on the month and contracted 1.2 percent year-over-year.
Services were up 0.3 percent on the month, 60 percent of which due to a 0.3 percent advance in prices for services less trade, transportation, and warehousing. Trade services rose 0.5 percent while transportation and warehousing decreased 0.4 percent. Services prices increased 2.9 percent year-over-year.
Market Consensus Before Announcement
Producer prices in September are expected to rise 0.3 percent on the month versus a 0.7 percent increase in August. The annual rate in September is seen at 1.7 percent versus August's 1.6 percent increase. September's ex-food ex-energy rate is seen rising 0.2 percent on the month and 2.1 percent on the year versus August's 0.2 percent on the month and 2.2 percent yearly rise.
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.
