Producer Price Index unchanged in August

The Producer Price Index was unchanged in August, with an increase in consumer food prices offsetting further declines in energy prices. The Bureau of Labor Statistics release of the Producer Price Index (PPI) reported no movement (SA) in the PPI for finished goods in August, following a 0.4% decline in June and 0.2% uptick in July. Producer prices have remained relatively stable over the past three months after energy and other commodities induced a surge in prices that ended in May. Despite this recent stability, the price of finished goods was up 6.5% (NSA) relative to August 2010.

Food prices were up 1.1% (SA) in August. Over 30% of the increase in finished consumer food prices can be traced to meat prices, which were up 2.4%. Eggs (+10.9%) and fresh and dried vegetables (+8.9%) also contributed to the rise this month-to-month increase in food prices.

Core PPI, excluding the volatile components of food and energy, rose 0.1% (SA) in August. This is the tenth consecutive monthly increase in the core PPI. However, the rate of growth has been relatively modest, with the core index climbing only 2.5% since August 2010.

The price index for finished energy goods fell 1% in August, marking its third consecutive decline. Over half of the decline is due to a 6.0% decrease in liquefied petroleum gas (LPG) prices. Lower prices for gasoline (-1.0%) and diesel fuel (-5.9%) also contributed to this month’s decline in the finished energy goods index.

The composite index of inputs into residential construction slipped 0.4% (NSA) in August, but on a year-over-year basis the index has gained 6.6%. Prices of most building materials fell in August, with the largest declines observed in the indexes for oriented strand board (-5.7%), cement (-2.3%), copper (-2.0%), gypsum (-1.7%), asphalt (-1.6%) and steel (-1.0%). The index also includes gasoline and diesel fuel, thus falling energy prices also contributed to the decrease in the composite index. Only a few building products experienced an increase, these included lumber (+1.1%), plastic construction products (0.7%) and ceramic tiles (+0.5%).

The flat producer price index in August was not unexpected. Renewed fears over Europe’s debt crisis and the congressional deadlock over the debt ceiling, weighed on commodity prices in August. Oil prices (West Texas Intermediate) dropped 14% and similar sharp declines were observed for other commodities during the first half of August. Crude oil and other commodity prices have since recovered most of the declines registered last month and as a result a moderate increase in energy prices (and by extension a modest increase in the overall PPI for finished goods) is likely in September.

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