Headline PPI Drops By 0.1%, Core PPI Rises By 0.3%, Highest Y/Y NSA Jump Since June 2009, BLS To Change PPI Weights

Mixed picture in today's PPI which saw headline prices decline by 0.1%, on expectations of a 0.1% increase, driven by a 0.8% drop in both food and energy finished goods. Alternatively, core PPI rose by 0.3%, with the same +0.1% consensus, and is the largest M/M increase since July 2011. Just as curious, the Year over Year change in the NSA PPI of 3.0% is the highest in the series since June 2009. It appears money printing even in the face of multi-trillion debt deleveraging can be inflationary. Finally, and in pulling a page straight out of the BLS playbook, the BLS announced it would change the weighting in its PPI categories. "The new weights, which will be introduced in February 2012 with the release of January 2012 index data, will be based on shipment values from the year 2007. These value weights come from the Census of Manufactures, the Census of Mining, the Census of Services, and the Census of Agriculture. PPI weights have been based on 2002 census shipment values since January 2007. All PPIs will be affected by this weight update, including all the industry net output indexes, as well as indexes for traditional commodity groupings. In addition, weights will be updated from the 2002 to the 2007 census for all stage-of-processing indexes, durability of product indexes, and special commodity-grouping indexes. This weight revision will not change any arithmetic reference bases for indexes, the dates when PPIs were set to 100." This is a lot of words to say that going forward even more inflation will be crammed into smoothed core price indices, so as to completely ignore any swings in the margins. Because after all who cares about energy and food?

Some commentary from Bloomberg

  • Light trucks accounted for 30% of core rise
  • Headline decline fueled by drop in energy prices, with forward-looking intermediate costs indicating “further relief is on the way for producers,” says Bloomberg economist Joseph Brusuelas
  • Easing pricing pressures “will be good for profit margins later in 2012”
  • Light trucks, passenger cars down on Thai-floods-triggered supply-chain disruptions, tobacco up on tax increases
  • "The global economy is slowing and prices of most basic materials are moderating,’’ says Bloomberg economist Rich Yamarone

Core PPI NSA Y/Y change:

From the report on what caused the jump in core PPI:

Trade industries: The Producer Price Index for the net output of total trade industries moved up 0.2 percent in December after no change in November. (Trade indexes measure changes in margins received by wholesalers and retailers.) Leading the December advance were margins received by merchant wholesalers of durable goods, which climbed 1.4 percent. Higher margins received by discount department stores and by automotive parts and accessories stores also were factors in the rise in the total trade industries index. In 2011, the total trade industries index rose 3.4 percent.


Transportation and warehousing industries: The Producer Price Index for the net output of transportation and warehousing industries moved up 0.6 percent in December following a 0.2-percent decline in November. Over seventy percent of this rise can be traced to prices received by the  scheduled passenger air transportation industry, which climbed 2.7 percent. Higher prices received by the industries for long-distance general freight trucking (truckload) and local general freight trucking also contributed to the increase in the transportation and warehousing industries index. In 2011, the transportation and warehousing industries index moved up 6.1 percent. 


Traditional service industries: The Producer Price Index for the net output of total traditional service industries edged down 0.1 percent in December following a 0.1-percent advance in November. The index for the commercial banking industry led the December decrease, falling 0.9 percent. Lower prices received by the industries for non-casino hotels and motels and for passenger car rental also were factors in the decline in the total traditional service industries index. In 2011, the total traditional service industries index increased 1.9 percent.

And so on. Full report here.


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