December Producer Price Index: Final Demand Increased 0.3%

Today's release of the December Producer Price Index (PPI) for Final Demand came in at 0.3% month-over-month seasonally adjusted, down from last month's 0.4%. It is at 1.6% year-over-year, unchanged from last month, on a non-seasonally adjusted basis. Core Final Demand (less food and energy) came in at 0.2% MoM, down from 0.4% the previous month and is up 1.6% YoY. Investing.com MoM consensus forecasts were for 0.3% headline and 0.1% core.

Here is the summary of the news release on Final Demand:

The Producer Price Index for final demand increased 0.3 percent in December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 0.4 percent in November and were unchanged in October. (See table A.) On an unadjusted basis, the final demand index climbed 1.6 percent in 2016 after falling 1.1 percent in 2015.

In December, nearly 80 percent of the advance in the final demand index is attributable to a 0.7-percent increase in prices for final demand goods. The index for final demand services inched up 0.1 percent.

Prices for final demand less foods, energy, and trade services moved up 0.1 percent in December after rising 0.2 percent in November. In 2016, the index for final demand less foods, energy, and trade services climbed 1.7 percent following a 0.3-percent advance in 2015. More…

Finished Goods: Headline and Core

The BLS shifted its focus to its new "Final Demand" series in 2014, a shift we support. However, the data for these series are only constructed back to November 2009 for Headline and April 2010 for Core. Since our focus is on longer-term trends, we continue to track the legacy Producer Price Index for Finished Goods, which the BLS also includes in their monthly updates.

As this overlay illustrates, the Final Demand and Finished Goods indexes are highly correlated.

FRED® Graphs ©Federal Reserve Bank of St. Louis . All rights reserved.

Now let's visualize the numbers with an overlay of the Headline and Core (ex food and energy) PPI for finished goods since 2000, seasonally adjusted. The plunge that began in mid-2014 in headline PPI is, of course, energy related. It is now off its interim low set in April of last year. Year-over-year Core PPI, now at 2.0%, has trended lower from its 2.3% interim high set the middle of last year.

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As the next chart shows, the Core Producer Price Index is far more volatile than the Core Consumer Price Index. For example, during the last recession producers were unable to pass cost increases to the consumer.

Check back next month for a new update.

Written By: Doug Short