A family of indexes that measure the average change over time in selling prices received by domestic producers of goods and services. PPIs measure price change from the perspective of the seller. This contrasts with other measures that measure price change from the purchaser's perspective, such as the Consumer Price Index (CPI). Sellers' and purchasers' prices may differ due to government subsidies, sales and excise taxes, and distribution costs.In other words, we're looking at this from the seller's perspective.
Let's go to the report:
The Producer Price Index for finished goods was unchanged in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Finished goods prices advanced 0.2 percent in July and declined 0.4 percent in June. At the earlier stages of processing, prices received by manufacturers of intermediate goods decreased 0.5 percent in August, and the crude goods index moved up 0.2 percent. On an unadjusted basis, prices for finished goods increased 6.5 percent for the 12 months ended August 2011, the smallest year-over-year advance since a 5.6- percent rise in March 2011.
The above chart shows the YOY percentage change in PPI. Right now it's running pretty hot -- it's near the highest levels seen in the last 25 years.
In addition, core PPI is still at very manageable levels.
However,
the above chart of PPI and CPI show that while PPI is having a general
effect on CPI, PPI is running hotter than CPI. In other words, the
level of bleed-through between PPI and CPI exists, but not in an extremely detrimental way. This relationship does need to be monitored, however.
While there has been considerable debate (and at times consternation) regarding the use of core and total PPI (and CPI), it's important to realize why this is done. Commodity prices are in part seasonal and also deeply effected by supply and demand. As such, they can vacillate wildly. But serious upswings are the standard remedy for the following downswing -- or, more specifically, the cure for high commodity prices is high commodity prices. By using two different measures -- total and core -- we can see if high commodity prices are in fact bleeding through to core prices, to see if high commodity prices are taking root in the overall price structure that exists throughout the economy.
The above chart shows the YOY percentage change between crude, intermediate and final goods. The red line -- show shows crude goods -- is moving around a lot, while intermediate and final prices aren't. This tells us that huge swings in crude goods (raw material inputs) are being absorbed in later stages of production. This is further reason why economists note the difference between core and non-core prices.
So -- the bottom line is total PPI is at uncomfortable levels in and of itself. However, while there is some bleed through to CPI, CPI is still lower, indicating that PPI can run at these levels without causing inflationary concern -- yet. But, these are figures that we have to keep an eye on going forward.
The above chart shows the YOY percentage change between crude, intermediate and final goods. The red line -- show shows crude goods -- is moving around a lot, while intermediate and final prices aren't. This tells us that huge swings in crude goods (raw material inputs) are being absorbed in later stages of production. This is further reason why economists note the difference between core and non-core prices.
So -- the bottom line is total PPI is at uncomfortable levels in and of itself. However, while there is some bleed through to CPI, CPI is still lower, indicating that PPI can run at these levels without causing inflationary concern -- yet. But, these are figures that we have to keep an eye on going forward.
