Producer Prices Rise Double Expected Rate As Fuel Price "Noise" Won't Go Away

Tyler Durden's picture

PPI Final Demand rose 1.9% year-over-year (tied for 3rd highest in a year) as it appears Janet Yellen's transitory "noise" just won't go quietly into the night (though has fallen for 2 months in a row). While the headline print was not helped by a 2.1% surge in fuel prices, Core PPI (ex Food and Energy) rose more than expected (at 1.8% vs 1.7% expected) holding near its highest since Dec 2012. On a sequential basis, the headline 0.4% increase was double the 0.2% expected, while the core M/M rise of 0.2% was in line with expectations.

The PPI components broken down by goods and services.

Core PPI:

 

 

So what was the reason for the headline spike? Two months ago it was a huge jump in food costs. This time: energy costs, read gas.

The breakdown: all about energy.

Final demand goods:

The index for final demand goods increased 0.5 percent in June compared with a 0.2-percent decrease in May. Nearly 90 percent of the advance can be traced to prices for final demand energy, which climbed 2.1 percent in June. The index for final demand goods less foods and energy edged up 0.1 percent. In contrast, the index for final demand foods declined 0.2 percent.

 

Product detail: In June, a 6.4-percent advance in gasoline prices accounted for most of the increase in the final demand goods index. Prices for residential electric power, pharmaceutical preparations, meats, fresh and dry vegetables, and soft-cake bakery products also rose. Conversely, the index for grains dropped 12.5 percent in June. Prices for residential natural gas and light motor trucks also declined.

 

Final demand services: Prices for final demand services increased 0.3 percent in June subsequent to a 0.2-percent decline a month earlier. Nearly two-thirds of the broad-based advance is attributable to the index for final demand services less trade, transportation, and warehousing, which moved up 0.3 percent. Prices for final demand trade services rose 0.2 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) The index for final demand transportation and warehousing services increased 0.3 percent.

 

Special grouping, Final demand less foods, energy, and trade: Prices for final demand less foods, energy, and trade services rose 0.2 percent in June compared with no change in May and a 0.3-percent advance in April. (The index for final demand less foods, energy, and trade services represents about two-thirds of final demand.)

 

Special grouping, Finished goods: Prices for finished goods increased 0.7 percent in June after edging down 0.1 percent in the prior month. (The finished goods index represents about two-thirds of final demand goods, through the exclusion of the weight for government purchases and exports. The finished goods index represents about one-quarter of overall final demand.) Nearly three-quarters of this broad-based advance can be traced to prices for finished consumer energy goods, which jumped 2.3 percent.

It now remains to be seen if the recent decline in Brent prices flows through into energy costs in the coming summer months.