The rate of growth in the Producer Price Index (PPI) has finally begun to show signs of slowing, after 7 months of strong growth and eleven consecutive months of increases. The Bureau of Labor Statistics reported that, month-over-month, the PPI for finished goods rose only 0.2% (SA) in May, representing a marked deceleration from the gains observed between January and April of this year. Over the past year, the price of finished goods has advanced 7.3% (NSA), the largest year-over-year increase for the index since September 2008.
Although still rising, energy prices rose at a more moderate rate of 1.5% (SA) in May following 5 months increasing at a pace of at least 2.5%. Gasoline prices, up 2.7%, remained the main driver behind the increase in energy price, accounting for about three quarters of the May rise. However, growth has slowed considerably from earlier in the year when gasoline was rising at 6.8% (January) and 5.7% (March). Countering the rise in gasoline prices was a decline in diesel fuel prices, down 3.8% (SA)—following nine months of very strong growth.
As mentioned in last month’s post on the PPI report, oil prices reached their peak in the last week of April as the front-month contract for West Texas Intermediate (WTI) topped out at $113 per barrel. WTI has since fallen back and stabilized around $100 per barrel. This price decline began to filter through the refineries to the pump price in the second half of May, but this was too late to result in an overall decline in the pump price of gasoline. However, we can expect a notable decline in gasoline prices in next month’s PPI report.
Food prices were down 1.4% (SA) in May, offsetting much of the moderate rise in energy prices. The decline was mainly driven by falling fresh fruit (-11.1%) and vegetables (-12.2%) prices. Fresh fruit and vegetables appear to be returning to more normal levels following steep increases earlier in the year that were a result of severe weather conditions that damaged crops in the south.
Core PPI, which serves as a more stable indicator of producer prices due to the exclusion of volatile food and energy prices, continued to rise, climbing 0.2% (SA) in May. While this is the sixth straight rise in the core PPI, the rate of growth has been slight, resulting in a modest 2.1% increase since May 2010.
The composite index of inputs into residential construction rose 0.7% (NSA) in May and is up 5.9% year-over-year. While energy prices continue to dominate the composite index, the trend in the main building products that make up the index was mixed.
Increasing global demand has driven a marked increase year-over-year in copper and copper products (+23.3%) and copper and brass mill shapes (+17.0%). However, the price pressures on copper appear to have eased in recent months, with a moderate decline in March and a modest increase in April. Prices of copper and copper products (-3.6% NSA) and copper and brass mill shapes (-4.0%) fell again in May.
The prices of steel mill products continued to rise, up 10.1% on a year-over-year basis. However, price pressures on steel mill products appear to be easing—a month-over-month increase of 1.1% in May, following a 2.2% increase in April and a 5.5% increase in March.
Gypsum prices experienced a solid increase in May, up 4.3%, recovering most of the 4.9% decrease in April. Gypsum prices have fluctuated over the past 12 months, but overall are down 1.2% since May 2010.
Plastic and asphalt products also rose in May, with a notable increase in asphalt paving and block (+3.3% NSA), shingles and coating (+3.3%), roofing and siding (+2.7%), and plastic construction products (+1.8%). These products have experienced only modest wholesale price growth in the past year, up 2.1% or less year-over-year in April. The increase in May can be attributed to the pass-through effects of rising input costs, namely the strong increase in oil prices since the beginning of the year.
The lumber and wood products index was little changed, down 0.1% in May, but there was wide variation in the components of the index. Orient Strand Board (OSB) prices fell 4.7% (NSA) and lumber prices were down 1.7%. Meanwhile, more moderate price changes were observed in plywood (-0.3%), millwork (0.0%) and prefabricated wood buildings and components (+0.1%).
Most other building materials experienced either a modest decline or slight rise, reflecting the weak demand still emanating from the struggling housing sector.