| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| PPI-FD - M/M | 0.1% | -0.1% to 0.2% | 0.3% | -0.1% | |
| PPI-FD - Y/Y | 0.7% | 0.7% to 0.8% | 0.9% | 1.0% | |
| Ex-Food & Energy - M/M | 0.1% | 0.0% to 0.2% | 0.5% | 0.0% | -0.1% |
| Ex-Food & Energy - Y/Y | 1.7% | 1.6% to 1.8% | 2.0% | 1.8% | 1.7% |
| Ex-Food, Energy & Trade Services - M/M | 0.2% | 0.1% to 0.2% | 0.6% | 0.2% | |
| Ex-Food, Energy & Trade Services - Y/Y | 2.6% | 2.5% |
Highlights
Key measures of producer prices showed inflationary pressures were stickier than expected in January, with the headline index up 0.3 percent on the month and 0.9 percent year-over-year, topping even the highest forecasts of 0.2 percent and 0.8 percent, respectively, in an Econoday survey.
Excluding food and energy, prices increased 0.5 percent on the month and 2.0 percent year-over-year, noticeably above the consensus estimates of 0.1 percent and 1.7 percent, respectively. The core index, which also excludes trade services, was up 0.6 percent on the month, the largest gain in a year, also above expectations, for a year-over-year advance of 2.6 percent. The 12-month rate picked up from December for both indexes, while it eased from 1.0 percent for the headline measure.
Today's report comes on the back of higher-than-expected CPI readings released earlier this week, further reducing odds of interest rate cuts by the Federal Reserve anytime soon. Econoday's Relative Performance Index is now at 13, consistent with a slight outperformance of the economy.
PPI for final demand services increased 0.6 percent on the month, the largest gain since July 2023, picking up to 2.2 percent year-over-year from 1.7 percent in December. Trade services were up 0.2 percent, while warehousing was down 0.4 percent on the month.
By contrast, the goods index was down 0.2 percent in a fourth consecutive retreat, for a 1.7 percent 12-month decline.
PPI for final demand, foods fell a further 0.3 percent on the month and 3.6 percent year-over-year. Energy was down 1.7 percent from December and 9.8 percent from a year earlier.
Excluding food and energy, prices increased 0.5 percent on the month and 2.0 percent year-over-year, noticeably above the consensus estimates of 0.1 percent and 1.7 percent, respectively. The core index, which also excludes trade services, was up 0.6 percent on the month, the largest gain in a year, also above expectations, for a year-over-year advance of 2.6 percent. The 12-month rate picked up from December for both indexes, while it eased from 1.0 percent for the headline measure.
Today's report comes on the back of higher-than-expected CPI readings released earlier this week, further reducing odds of interest rate cuts by the Federal Reserve anytime soon. Econoday's Relative Performance Index is now at 13, consistent with a slight outperformance of the economy.
PPI for final demand services increased 0.6 percent on the month, the largest gain since July 2023, picking up to 2.2 percent year-over-year from 1.7 percent in December. Trade services were up 0.2 percent, while warehousing was down 0.4 percent on the month.
By contrast, the goods index was down 0.2 percent in a fourth consecutive retreat, for a 1.7 percent 12-month decline.
PPI for final demand, foods fell a further 0.3 percent on the month and 3.6 percent year-over-year. Energy was down 1.7 percent from December and 9.8 percent from a year earlier.
Market Consensus Before Announcement
Producer prices in January are expected to rise 0.1 percent on the month versus a 0.1 percent decline in December. The annual rate in January is seen at 0.7 percent versus December's 1.0 percent rise which, like the monthly rate, was lower than expected. January's ex-food ex-energy rate is also seen up 0.1 percent on the month and up 1.7 percent on the year.
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.
