Tuesday, May 20, 2008

Producer Price Index

The US producer price index rose a tame 0.2% in April, less than half of what was expected. Core PPI, which excludes energy and food prices because of their volatile nature, increased a surprising 0.4%. Economists had forecast a 0.4% gain for the PPI, and a 0.2% for the core.

The monthly gain was largely attributed to increases in consumer goods prices, and not the usual culprits, wholesale energy and food prices. Core prices were pushed higher by a 1.3% increase in wholesale light truck prices and a 0.4% increase in wholesale car prices. Drug prices rose 0.7%, alcohol prices gained 1%, and commercial furniture prices rose 1.8%, the most in 27 years. Capital goods prices rose 0.4%.

Energy prices at the wholesale level actually fell 0.2%, while food prices were flat for the month. You might be wondering, like the millions who fill up their tanks and eat a few meals a day, how this is possible. Well, here's your answer...

The government's data are seasonally adjusted to hide the impact of normal seasonal variations to focus on fundamental changes in prices that are not driven by the ebbs and flows of the seasons. Because energy prices typically rise more in April than they did this year, the seasonally adjusted figures showed a 0.2% decline. In unadjusted terms, energy prices rose 2.9%. Wholesale gasoline prices fell 4.6% in seasonally adjusted terms, but rose 3.2% in unadjusted terms. - Marketwatch

Year-over-year, producer prices have increased 6.5%. Core PPI gained 3.0% in the same period, the largest gain since late 1991.

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