Volatile energy prices continue to dictate the direction of the producer price index (PPI). The Bureau of Labor Statistics reported a seasonally adjusted 0.8% increase in the prices for finished goods in September, driven by a 2.3% (SA) increase in the prices for energy goods. This follows a period of relatively stable producer prices in June (-0.1%), July (+0.2%) and August (unchanged) as energy prices experienced three consecutive monthly declines. On a year-over-year basis, prices for finished goods are 6.9% higher than September 2010 due to the strong growth in energy prices between November 2010 and April 2011.
The BLS note that “Nearly 70% of this rise (in the index for finished energy goods) can be attributable to the gasoline index, which increased 4.2% (SA). Higher prices for diesel fuel (+7.3%) and liquid petroleum gas (+5.6%) were also factors in the rise in the finished energy goods index.” The rise in the gasoline index came as a surprise, since the Energy Information Administration reported a modest decline for both crude oil (WTI falling from $86.33 to $85.63 per barrel) and gasoline pump prices ($3.61 to $3.57 per gallon) between August and September. This divergence is likely to be corrected next month. Consequently, and given that oil and gasoline prices trended lower through October, a notable decline in the index for finished energy goods is expected when October data are reported next month.
Food prices rose 0.6% (SA) in September, on the back of strong gains in vegetable (+10.0%), fresh fruit (+3.1%) and red meat (+5.4%) prices.
Core PPI, which excludes volatile food and energy prices, increased 0.2% (SA) in September. While this is the tenth consecutive rise in core PPI, the rate of growth has been relatively modest, resulting in a moderate 2.5% increase since September 2010.
The composite index of inputs into residential construction was unchanged (NSA) in September, with declines in the price of most building materials offsetting the increase in gasoline and diesel fuel prices. While the index has remained relatively flat over the past three months, strong growth in the first half of 2011 has left the index up 6.7% year-over-year.
Declines were observed in most of the main building materials, including copper (-2.6% NSA), asphalt roofing and siding (-2.3%), insulation (-2.1%), plywood (-1.9%), gypsum (-1.7%), lumber (-1.1%) and steel (-0.6%). Oriented strand board (+3.3%), cement (+1.3%) and concrete (+0.2%) were the only exceptions.