January PPI

Updated 08-Feb-07 11:32 ET

About this release

Highlights

Briefing.com Forecast: -0.6% PPI, 0.2% core
Market Consensus: -0.6% PPI, 0.2% core

Key Factors

The expected decline is tied to energy prices and the exaggerating force of energy seasonal adjustment.
Core rate expected at the same moderate 0.2% December pace.
Leaves lower 0.3% yoy gain as the core falls back to Nov's 1.8% yoy gain.
PPI peaked at 6.9% yoy peak in Sept 2005. Core PPI at 2.8% yoy in July 2005.
Intermediate goods prices were at 3% yoy in December as crude goods prices stood lower at -2% yoy.
The pressure from commodities prices long ago faded and never had a strong effect on consumer prices.

Big Picture

September 2005 PPI growth of 6.9% yoy stood at a 15 year high but has dropped sharply to just 1.1% yoy. The core stands at 2.0% yoy from July 2005's decade high of 2.8%. The stronger pipeline pressures of the last year have only partially fed in to finished goods as the rise (and now decline) in energy prices provides the volatility. The directional trends for producer prices have turned toward lower yoy growth. The importance for the market (and the Fed) is any lingering effects on consumer prices.

Category	Jan	Dec	Nov	Oct	Sep
Finished Goods	-0.6% E	0.9	2.0	-1.6	-1.4
Core	0.2% E	0.2	1.3	-0.9	0.3
Capital Equipment		0.2	1.4	-0.9	0.3
Consumer Foods		1.7	0.1	-0.8	0.7
Energy		2.5	6.1	-5.0	-8.1
Intermediate Materials		0.5	0.7	-1.1	-1.5
Core		-0.1	-0.3	0.0	0.1
Crude Materials		2.9	15.7	-10.5	-3.1
Core		1.0	0.5	-1.3	0.8

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Release Details

PPI: Producer Price Index

Importance (A-F): This release merits a B-.
Source: Bureau of Labor statistics, U.S. Department of Labor.
Release Time: Around the 11th of each month at 8:30 ET for the prior month.
Raw Data Available At: http://stats.bls.gov/news.release/ppi.toc.htm.

The Producer Price Index measures prices of goods at the wholesale level. There are three broad subcategories within PPI: crude, intermediate, and finished. The market tracks the finished goods index most closely, as it represents prices for goods that are ready for sale to the end user. Goods prices at the crude and intermediate stages of production often provide an indication of coming (dis)inflationary pressures, but the closer you get to crude goods, the more that these prices track commodity prices which are already available in traded indexes such as the CRB (Commodity Research Bureau).

At all stages of production, the market places more emphasis on the index excluding food and energy, referred to as the core rate. Food and energy prices tend to be quite volatile and obscure trends in the underlying inflation rate. Though the market reaction is determined by the month/month changes, year/year changes are also noted by analysts. The index is not revised on a monthly basis, but annual revisions to seasonal adjustment factors can produce small adjustments to past releases.