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U.S. Wholesale Price Inflation Reverses Part of Recent Decline

Economics / Inflation Jul 14, 2012 - 12:23 PM GMT

By: Asha_Bangalore

Economics

Best Financial Markets Analysis ArticleThe Producer Price Index (PPI) of Finished Goods moved up 0.1% in June, following a string of three monthly declines. The energy price index fell 0.9% in June vs. a 4.3% decline in May. Wholesale gasoline and natural gas prices moved up in June but residential electricity costs declined and provided a large enough offset to bring down the overall finished energy price index. The 0.5% increase in food prices was one of the culprits for a gain in the headline index.


Chart 1



The core PPI, which excludes food and energy, increased 0.2% in June to mark the fourth consecutive monthly increase. According to the BLS, the 1.4% increase in the price of light trucks accounts for 70% of the increase in the core PPI in June. On a year-to-year basis, the core PPI has hovered in the 2.0-2.3% range for four straight months. This aspect is not too worrisome because of the weak pass-through of wholesale core prices to retail consumer prices (see Chart 2). The Fed’s preferred inflation measures are the personal consumption expenditure (PCE) price index and the core personal consumption expenditure price index; both of these price gauges show contained readings below the Fed’s target of 2.0%.

Chart 2



Producer Price Index – June 2012

Asha Bangalore — Senior Vice President and Economist

http://www.northerntrust.com

Asha Bangalore is Vice President and Economist at The Northern Trust Company, Chicago. Prior to joining the bank in 1994, she was Consultant to savings and loan institutions and commercial banks at Financial & Economic Strategies Corporation, Chicago.

Copyright © 2012 Asha Bangalore

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.


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