Producer Prices Slide Driven By Biggest Plunge In Energy Since November 2013, Core PPI Rises Most Since May

Tyler Durden's picture

Following another monthly surge in the June PPI print, when it rose by 0.4%, or the second highest amount in a year, the July headline reading was a far tamer 0.1%. This was driven entirely by the plunge in energy prices (supposedly due to the Iraq military incursion and the "de-escalation" of the Ukraine civil war), which resulted in a -0.6% plunge in energy costs, which was the biggest monthly drop in over a year, matching the decline recorded in November of 2013. Offsetting the energy drop was a 0.4% increase in food prices, following two months of -0.2% decline. When stripping the volatile, and easily manipulated asset prices linked to brent, crude and the like, core PPI ex food and energy rose by 0.2%: the highest since March.

The monthly breakdown by component:

The breakdown:

Final demand services: The index for final demand services inched up 0.1 percent in July after rising 0.3 percent in the prior month. Leading the July increase, the index for final demand transportation and warehousing services moved up 0.5 percent. Margins for final demand trade services advanced 0.2 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) The index for final demand services less trade, transportation, and warehousing was unchanged.

 

Product detail: In July, prices for truck transportation of freight climbed 0.7 percent. Margins for automotive fuels and lubricants retailing and for apparel, footwear, and accessories retailing increased. The indexes for portfolio management and passenger car rental also moved higher. In contrast, margins for machinery and equipment wholesaling fell 1.7 percent in July. The indexes for loan services (partial); apparel wholesaling; and health, beauty, and optical goods retailing also decreased.

 

Final demand goods: Prices for final demand goods were unchanged in July after moving up 0.5 percent in June. In July, a 0.2-percent rise in the index for final demand goods less foods and energy and a 0.4-percent increase in prices for final demand foods offset a 0.6-percent decline in the index for final demand energy.

 

Product detail: In July, among prices for final demand goods, the index for pharmaceutical preparations rose 1.0 percent. Prices for meats, processed poultry, residential electric power, and light motor trucks also moved higher. Conversely, gasoline prices fell 2.1 percent in July. The indexes for soybeans, fresh and dry vegetables, grains, and gold and platinum jewelry also decreased.

 

Special grouping, Final demand less foods, energy, and trade: Prices for final demand less foods, energy, and trade services rose 0.2 in July following a 0.2-percent advance in June and no change in May. (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 inched up 0.1 percent in July after a 0.7- percent advance in June. (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.) The July increase was led by prices for finished consumer foods, which climbed 1.0 percent. The index for finished goods less foods and energy edged up 0.1 percent. In contrast, prices for finished consumer energy goods declined 0.7 percent. Within finished goods, rising prices for meats, residential electric power, processed poultry, pharmaceutical preparations, and light motor trucks outweighed falling prices for gasoline, fresh and dry vegetables, residential natural gas, and gold and platinum jewelry.

The only question is whether Yellen will look at the rising Core PPI and consider it a less "noisy" indicator of the Fed's policy aftermath. The answer: as long as the S&P is below 2,150, a resounding no.