Over the past several years, alongside the increasingly more "hedonically" doctored government inflation data, the Producer Price report has slowly but surely lost its significance. Today's report was no different: according to the BLS' seasonal adjustments, July PPI data was unchanged, dropping from the 0.8% increase in June and missing expectations of a 0.3% increase. This was driven by a -0.2% drop in energy finished good prices after a surge of 2.9% and 1.3% in energy prices in June and May, with food prices unchanged on the month. Core PPI excluding food and energy was also virtually unchanged at 0.1% on expectations of a 0.2% increase. And while the tapering in PPI inflation will likely be concerning to the Fed, the reality is that the unadjusted Y/Y increase was 2.1%, or in line with where it should be. Of course, we use the term "reality" loosely: anyone who thinks prices have increased only 2% over the past year, doesn't drive, eat or rent.
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And while economists may ignore food and energy costs, the general population, or at least 99% of it, whose real income is rapidly dwindling with every passing month, has to increasingly focus on these "non-core" items. Here is where the key price changes were according to stages of production:
Crude energy: Prices for crude energy materials increased 4.0 percent in July. From April to July, the index for crude energy materials rose 9.5 percent subsequent to a 1.3-percent decline for the 3 months ended in April. In July, the monthly rise is mostly due to a 10.6-percent jump in crude petroleum prices. Higher prices for coal also contributed to the increase in the crude energy index. (See table 2.)
Crude foods: The index for crude foodstuffs and feedstuffs moved down 1.1 percent in July. From April to July, the index for crude foods rose 0.6 percent following a 2.9-percent decrease for the 3 months ended in April. Over seventy percent of the monthly decline in July is attributable to raw milk prices, which fell 5.9 percent. Lower prices for slaughter chickens also were a factor in the decrease in the crude foodstuffs and feedstuffs index
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Intermediate foods: Prices for intermediate foods and feeds rose 1.2 percent in July, the largest increase since a 2.5-percent jump in August 2012. The July advance is mostly attributable to a 4.9-percent rise in the index for prepared animal feeds. Higher prices for pork and for shortening and cooking oils also contributed to the increase in the intermediate foods and feeds index. (See table 2.)
Intermediate energy: The index for intermediate energy goods moved up 0.3 percent in July, the third straight increase. Accounting for most of the July advance, prices for diesel fuel jumped 5.6 percent.
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Finished energy: Prices for finished energy goods moved down 0.2 percent in July after climbing 2.9 percent a month earlier. This decline is mostly attributable to a 3.9-percent decrease in the index for residential natural gas. Lower prices for gasoline and finished lubricants also were factors in the decline in the index for finished energy goods.
Finished foods: Prices for finished consumer foods were unchanged in July following a 0.2-percent advance in June. In July, a 5.6-percent increase in the index for pork offset a 10.6-percent decline in prices for fresh vegetables, except potatoes
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Take home: if you want to eat cheap, stay away from the pork and potatoes, eat vegetables, run away from animal feeds, and chug it all down with milk.