from Bureau of Labor Statistics today:
The US Bureau of Labor Statistics reported today that after seasonal adjustments, the producer price index for final demand rose by 1.0% in July. The final demand price rose by 1.0% in June and 0.8% in May. (See Table A.) On an unadjusted basis, the final demand index for the 12 months ending in July rose 7.8%, which was the largest increase since the first 12-month data was calculated in November 2010.
Nearly three-quarters of the increase in the final demand index in July can be traced to a 1.1% increase in the price of final demand services. The final demand commodity index rose 0.6%.
PPI and core PPI inflation rates are higher than the Bloomberg consensus figures.
This is a comparison of the CPI and PPI of the final demand, and the less discussed PPI of the final product. (For more information on yesterday’s CPI, please refer to this postal.)
figure 1: The monthly month-on-month annualized inflation rate of the CPI (blue) of all urban consumers, goods and services, the PPI of all final demand, the finished product (pink), and the PPI (blue-green) of all goods are all expressed in %. Source: BLS and author’s calculations.
Core measurement shows continuous acceleration, m/m. (Note that the ratio in the image below is narrower.)
figure 2: The quarter-on-quarter annualized inflation rate of all urban consumers, the CPI of goods and services other than food and energy (blue), the PPI of all final demand (pink), and all the final demand, the PPI of manufactured products except food and energy ( blue),%. Source: BLS and author’s calculations.
Is PPI ahead of US CPI? Clark (1995) Provides a skeptical view that PPI provides additional system predictive capabilities.
Some analysts predict that the recent increase in crude oil and intermediate product prices will pass through the production chain and generate higher consumer price inflation. Although simple economics suggests that such transfer effects may occur, more complex reasoning and careful consideration of the PPI and CPI data structures indicate that any transfer effects may be weak. Consistent with this more complex analysis, empirical evidence also shows that the production chain only weakly links consumer prices to producer prices. PPI changes can sometimes help predict CPI changes, but it is not possible to do so systematically. Therefore, the recent rise in some producer price indexes does not in itself indicate that the CPI inflation rate will rise.
Corporal wait. (2002) Using a more formal diversified approach to conclude that for the G-7 economies, PPI is indeed ahead of CPI. Whether these findings still apply to the current environment (and using the updated version of PPI) remains to be seen.
Currently, Cleveland Federal ReserveThe nowcasts show that using their model, PCE inflation rose month-on-month and core inflation fell in July, in response to the PPI information released today.
