Producer prices resumed their upward growth path in July. Although there was a further decline in energy prices, it was not enough to offset rising food and core producer prices. The Bureau of Labor Statistics reported that the PPI for finished goods increased 0.2% (SA) on a month-to-month basis in July, with the food index rising 0.6% and the core index up 0.4% in July. Overall, the price index for finished goods is up 7.2% (NSA) relative to July 2010.
The increase in the food index was driven by strong gains in the prices of eggs (+3.3%), dairy products (+2.9%), beef and veal (+2.7%) and fresh fruits (+0.6%). There was a sharp decline in prices of fresh and dry vegetables (-18.1%); however, this was giving back most of the increase that occurred during the previous month (+19.6%). On the whole, the price index for finished consumer foods is up 7.1% year-over-year.
The rise in the core index (finished goods excluding volatile food and energy prices) was driven by an increase in tobacco products (+2.8%) and light trucks (+1.0%). The core PPI is up 2.5% on a year-over-year basis. Core producer prices have increased over twelve consecutive months, averaging a modest 0.2% per month. However, the 0.4% increase for July represents a notable pick up in the rate of growth.
The energy index was down 0.6% (SA) in July, with gasoline prices (-2.8%) and diesel fuel (-2.1%) leading this component lower. Declining prices for home heating oil (-1.5%) and residential gas (-0.9%) also contributed to the drop, but residential electric power (+1.2% SA) prices rose. Despite these recent declines, the energy price index remains 20.1% above its level of July 2010.
Since their peak at the end of April, the spot price of West Texas Intermediate (oil) has trended lower, falling 11.6% between the months of April and June. While increasing modestly (+1.0%) in July, further declines in oil prices are expected following recent disappointing economic data releases. The daily tracking of the WTI spot price by the Energy Information Agency of the Department of Energy indicated a 16% decline between August 1 and August 12, which points to a marked decline in the price of finished energy goods over the near term.
The composite index of inputs into residential construction continued its steady upward trend, rising another 0.3% (NSA) in July. This is the tenth consecutive monthly increase and leaves this particular index 7.3% higher than the same time last year. The rise in July was driven by strong growth in copper prices (+5.0%), due to increasing demand from China. There was also a moderate increase in the prices of asphalt (+2.4%), insulation materials (1.0%), lumber (0.5%) and steel (0.5%). Countering these gains were declines in the prices of plywood (-1.4%), oriented strand board (-0.7%), gypsum (-0.6%) and cement (-0.4%). The prices of all other building materials fell within a range of ±0.3%.
The PPI for July was too early to capture the crisis of confidence in response to slowing domestic and global demand, and renewed concerns of Europe’s sovereign debt crisis that led to the recent stock market turmoil. Based on the sharp decline in oil prices in the first two weeks of August, falling prices of oil and other internationally-traded commodities are likely to drive a decline in the PPI in coming months.