| Consensus | Consensus Range | Actual | Previous | Revised | |
|---|---|---|---|---|---|
| PPI-FD - M/M | 0.2% | 0.2% to 0.4% | 0.2% | 0.0% | 0.1% |
| PPI-FD - Y/Y | 2.3% | 2.2% to 2.3% | 2.2% | 1.8% | 1.9% |
| Ex-Food & Energy - M/M | 0.3% | 0.2% to 0.3% | 0.3% | 0.2% | 0.1% |
| Ex-Food & Energy - Y/Y | 3.1% | 2.0% | |||
| Ex-Food, Energy & Trade Services - M/M | 0.3% | 0.2% | 0.1% | ||
| Ex-Food, Energy & Trade Services - Y/Y | 3.5% | 3.2% | 3.3% |
Highlights
The October final-demand producer price index is up 0.2 percent month-over-month and up 2.4 percent yar-over-year. The monthly increase matches the consensus in the Econoday survey of forecasters while the annual rise is slightly below the consensus of up 2.3 percent.
Excluding food and energy, the PPI is up 0.3 percent in October from September and up 2.2 percent compared to a year ago. Excluding food, energy, and trade services the BLS core measure the October PPI is also up 0.3 percent and up 3.5 percent compared to a year ago.
Food prices are down 0.2 percent in October from the prior month and up 2.7 percent year-over-yar. Energy prices are down 0.3 percent from September and down 8.6 percent compared to October 2023. Trade services are up 0.1 percent in October from September and up 1.8 percent year-over-year.
The producer price index for core goods reflects increases in a variety of categories. The BLS noted an increase of 8.4 percent for carbon steel scrap which"was a major factor in the advance in prices for final demand goods". Services prices included a 3.6 percent increase in portfolio management which accounted for"over one-third of the rise".
While there were a few narrow categories which contributed to overall price increases for producers, it would also appear that the broad-based disinflation at the producer level is beginning to fade. In context with the October CPI numbers, Fed policymakers may be turning more cautious about the pace of reducing restrictive monetary policy through rate cuts.
Excluding food and energy, the PPI is up 0.3 percent in October from September and up 2.2 percent compared to a year ago. Excluding food, energy, and trade services the BLS core measure the October PPI is also up 0.3 percent and up 3.5 percent compared to a year ago.
Food prices are down 0.2 percent in October from the prior month and up 2.7 percent year-over-yar. Energy prices are down 0.3 percent from September and down 8.6 percent compared to October 2023. Trade services are up 0.1 percent in October from September and up 1.8 percent year-over-year.
The producer price index for core goods reflects increases in a variety of categories. The BLS noted an increase of 8.4 percent for carbon steel scrap which"was a major factor in the advance in prices for final demand goods". Services prices included a 3.6 percent increase in portfolio management which accounted for"over one-third of the rise".
While there were a few narrow categories which contributed to overall price increases for producers, it would also appear that the broad-based disinflation at the producer level is beginning to fade. In context with the October CPI numbers, Fed policymakers may be turning more cautious about the pace of reducing restrictive monetary policy through rate cuts.
Market Consensus Before Announcement
Expectations for PPI call for a 0.2 percent rise on the month and a 2.3 percent increase on year. For PPI excluding food and energy, the consensus looks for a 0.3 percent increase on the month.
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.
