The Producer Price Index (PPI) is a measure of the average price level for a fixed basket of capital and consumer goods received by producers. Why Investors Care
| Released on 5/20/08 For Apr 2008 | |||||||||||||||||||||||||
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Highlights
Overall producer price inflation in April moderated on temporary softness in food and energy. The overall PPI posted a 0.2 percent increase, following a sharp 1.1 percent surge in March. The April increase was below the consensus forecast for a 0.4 percent rise in the overall PPI. In contrast, the core PPI rate came in with a 0.4 percent boost, following a 0.2 percent rise in March and exceeded consensus expectations for a 0.2 percent advance. Both the headline number and the core figure appear to have some temporary factors affecting April movement. Food came in flat while energy declined slightly. For the core, both passenger cars and light trucks rebounded from declines in March. Overall, the trend in headline inflation is probably stronger than the April number while that for the core is not as strong.
Headline inflation was kept soft by flat food prices and a dip in energy. Food prices were unchanged in April after a 1.2 percent jump the month before. Food was weakened by declines in fresh fruit, eggs, and beef & veal. High production costs may have led to lower beef & veal prices if slaughter rates are up due to herders not being able to afford the high cost of grain. Energy slipped 0.2 percent, following a 2.9 percent surge in March. Most recently, gasoline fell 4.6 percent, after a 1.3 percent rise in March.
Motor vehicle prices played key roles in boosting April's core number. Passenger cars rose 0.4 percent while light trucks gained 1.3 percent.
Also, strong demand from rising exports appears to be keeping capital goods prices quite firm as they rose 0.4 percent in April, following gains of 0.1 percent March and 0.5 percent in February.
Producer price inflation remains elevated despite the quirks of the April numbers. For the overall PPI, the year-on-year rate stood to up 6.4 percent, compared to 6.9 percent in March (seasonally adjusted). The core rate rose to up 3.0 percent from up 2.8 percent in March on a year-ago basis.
The April PPI report has several quirky numbers in it. Nonetheless, inflation pressures remain quite strong with oil and other commodity prices still high and not yet fully taken into account.
The producer price index is under upward price pressure from recent surges in oil and other commodity prices. Overall producer price inflation in March came in red hot although the core rate remained moderate in the latest monthly number. The overall PPI jumped a sharp 1.1 percent, due largely to spikes in food and energy costs. The core PPI rate eased to 0.2 percent, primarily on declines in passenger car and light truck prices.
PPI Consensus Forecast for April 08: +0.4 percent
Range: 0.0 to +0.8 percent
PPI ex food & energy Consensus Forecast for April 08: +0.2 percent
Range: +0.1 to +0.4 percent
![[Chart]](chart.gif)
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It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the PPI are mainly volatile because of sharp fluctuations in food and energy prices. The core PPI eliminates the sharper fluctuations. |
![[Chart]](chart_1.gif)
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Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core PPI does not fluctuate as much as the total PPI. |
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