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Producer Price Inflation Cools With First Decline in Services In Two Years

The Producer Price Index (PPI) was well under consensus estimates led by a decline in services inflation. Year-over-year the PPI is still elevated.
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Producer Price Index from BLS, chart by Mish

Producer Price Index from BLS, chart by Mish

Please consider the BLS Producer Price Index report for October 2022. 

PPI Key Month-Over-Month Details

  • The Producer Price Index for final demand increased 0.2 percent in October, seasonally adjusted.
  • Final demand prices rose 0.2 percent in September and were unchanged in August.
  • In October, the rise in the index for final demand can be attributed to a 0.6-percent advance in prices for final demand goods. In contrast, the index for final demand services decreased 0.1 percent.
  • Prices for final demand less foods, energy, and trade services advanced 0.2 percent in October following a 0.3-percent rise in September. 

The Bloomberg Econoday consensus was 0.5 percent month-over-month vs 0.2 percent actual. 

Excluding energy, economists expected a 0.4 percent rise in the PPI vs 0.0 percent actual.

PPI Year-Over-Year 

PPI Final Demand Year-Over-Year Four Ways 2022-10

PPI Key Year-Over-Year Details

  • On an unadjusted basis, the index for final demand advanced 8.0 percent for the 12 months ended in October.
  • Year-over-year, the index for final demand less foods, energy, and trade services increased 5.4 percent. 
  • Year-over-year, the PPI for energy is up 21.8 percent.
  • Year-over-year, the services PPI  is up 6.3 percent.

PPI Final Demand, Intermediate Demand, CPI YOY 

PPI Final Demand, Intermediate Demand, CPI YOY 2022-10

Final Demand  Goods

  • The index for final demand goods moved up 0.6 percent in October, the largest advance since a 2.2-percent rise in June. 
  • Most of the October increase can be traced to a 2.7-percent jump in prices for final demand energy. 
  • The index for final demand foods advanced 0.5 percent. Conversely, prices for final demand goods less foods and energy decreased 0.1 percent. 
  • In October, 60 percent of the increase in prices for final demand goods is attributable to the index for gasoline, which rose 5.7 percent. Prices for diesel fuel, fresh and dry vegetables, residential electric power, chicken eggs, and oil field and gas field machinery also advanced. 
  • The index for passenger cars declined 1.5 percent.

Final Demand Services

  • The index for final demand services fell 0.1 percent in October, the first decline since moving down 0.2 percent in November 2020. 
  • Leading the October decrease, margins for final demand trade services fell 0.5 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) 
  • Prices for final demand transportation and warehousing services moved down 0.2 percent. 
  • The index for final demand services less trade, transportation, and warehousing increased 0.2 percent. 
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Processed Goods for Intermediate Demand

  • Prices for processed goods for intermediate demand moved down 0.2 percent in October after no change in September. 
  • Leading the decrease, the index for processed materials less foods and energy fell 0.8 percent. Prices for processed foods and feeds declined 0.5 percent.
  • The index for processed energy goods advanced 1.7 percent. 
  • For the 12 months ended in October, prices for processed goods for intermediate demand rose 10.1 percent. 
  • A major factor in the October decrease in prices for processed goods for intermediate demand was the index for cold rolled steel sheet and strip, which dropped 16.5 percent. 
  • Prices for utility natural gas, primary basic organic chemicals, plastic resins and materials, liquefied petroleum gas, and processed young chickens also fell. 
  • The index for diesel fuel advanced 9.5 percent. 
  • Prices for agricultural chemicals and chemical products and for flour and flour-base mixes and doughs also moved higher.  

Unprocessed Goods for Intermediate Demand

  • The index for unprocessed goods for intermediate demand fell 11.7 percent in October, the largest decrease since moving down 14.4 percent in April 2020. 
  • The broad based October decline was led by prices for unprocessed energy materials, which dropped 19.8 percent. 
  • The indexes for unprocessed nonfood materials less energy and for unprocessed foodstuffs and feedstuffs also moved lower, 5.3 percent and 3.1 percent, respectively. 
  • For the 12 months ended in October, prices for unprocessed goods for intermediate demand rose 9.7 percent. 
  • A major factor in the October decrease in prices for unprocessed goods for intermediate demand was the index for natural gas, which dropped 37.8 percent.
  • Prices for corn, raw milk, slaughter barrows and gilts, oilseeds, and recyclable paper also moved lower. 
  • The index for crude petroleum increased 2.0 percent. Prices for ungraded chicken eggs and for coal also rose.  

Services for Intermediate Demand

  • The index for services for intermediate demand increased 0.3 percent in October, the fourth consecutive rise. 
  • Leading the October advance, prices for services less trade, transportation, and warehousing for intermediate demand climbed 0.5 percent. 
  • The index for transportation and warehousing services for intermediate demand moved up 0.6 percent. 
  • In contrast, margins for trade services for intermediate demand fell 0.3 percent. For the 12 months ended in October, the index for services for intermediate demand increased 6.5 percent, the largest advance since rising 7.9 percent in May.
  • Over half of the October rise in the index for services for intermediate demand can be attributed to a 6.0-percent increase in prices for business loans (partial).
  • The indexes for services related to securities brokerage and dealing (partial); arrangement of freight and cargo transportation; television advertising time sales; building materials, paint, and hardware wholesaling; and metals, minerals, and ores wholesaling also advanced. 
  • Conversely, margins for machinery and equipment parts and supplies wholesaling fell 0.9 percent. 
  • Prices for gross rents for retail properties and for long-distance motor carrying also decreased.  

The Fed will welcome this report. 

On the consumer side, note that the CPI Jumps Another 0.4% in October Led by Shelter and Energy.

That 0.4 percent rise was smaller than expected fueling a huge stock market rally. 

For discussion, please see my November 10 article Stocks Market Biggest Gains in More Than Two Years, Bond Yields Crash

This post originated on MishTalk.Com.

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