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Economy in Brief

U.S. Producer Prices Rise Unexpectedly in January
by Sandy Batten  February 17, 2016

The headline Final Demand Producer Price Index edged up 0.1% m/m (-0.2% y/y) in January. While this was a modest increase, it was 0.3%-pt above the Action Economics Forecast Survey expectation for a 0.2% m/m decline (this is a considerable miss). Final demand producer prices excluding food and energy components also rose quite a bit more than expected in January, rising 0.4% m/m (0.6% y/y) against an expected 0.1% monthly gain. Given the volatility and difficulty interpreting changes in prices of trade services, both the financial markets and the BLS have begun to shift their view of "core" PPI inflation to final demand prices excluding food, energy, and trade services prices from the historical "core" measure, which excluded only food and energy prices. This "new" core measure rose 0.2% m/m in January, the same monthly increase as in December to stand 0.8% higher than a year earlier.

In January, a 0.5% m/m increase in services prices was mostly offset by a 0.7% m/m decline in goods prices. The fall in good prices reflected a widely expected decline in energy prices (-5.0% m/m with gasoline prices falling 8.8% m/m) and a somewhat surprising 1.0% m/m increase in food prices (led by a 17.3% m/m jump in prices of fresh and dry vegetables). Goods prices excluding food and energy prices were unchanged in January and were also unchanged from a year earlier.

Typically, changes in overall services prices have reflected swings in prices of trade services (changes in margins received by retailers and wholesalers). Indeed, these prices jumped 0.9% m/m (0.8% y/y) in January following a 0.1% m/m decline in December and a 1.3% m/m rise in November. Also boosting services prices was an outsized 6.6% m/m (NSA) jump in prices of investment services in January. This monthly increase was the largest in the six-year history of the series by a factor of two.

Final demand construction prices fell 0.4% m/m in January but were up 1.2% from a year earlier.

Prices of processed goods for intermediate demand slumped 1.2% m/m in January and were 5.4% lower than a year earlier.

The PPI data are contained in Haver's USECON database with further detail in PPI and PPIR. The expectations figures are available in the AS1REPNA database.

Producer Price Index (SA, %) Jan Dec Nov Jan Y/Y 2015 2014 2013
Final Demand 0.1 -0.2 0.4 -0.2 -0.9 1.6 1.4
   Excluding Food & Energy 0.4 0.2 0.3 0.6 0.8 1.7 1.5
   Excluding Food, Energy & Trade Services 0.2 0.2 0.1 0.8 0.6 1.2 --
   Goods -0.7 -0.7 0.1 -2.5 -4.3 1.3 0.8
      Foods 1.0 -1.4 0.3 -3.5 -2.6 3.2 1.7
      Energy -5.0 -3.5 0.5 -11.5 -20.6 -0.9 -0.8
      Goods Excluding Food & Energy 0.0 0.1 0.0 0.0 0.4 1.5 1.1
   Services 0.5 0.1 0.5 0.9 0.9 1.8 1.6
   Construction -0.4 0.0 -0.3 1.2 1.9 2.9 1.8
Intermediate Demand - Processed Goods -1.2 -1.0 -0.4 -5.4 -6.9 0.6 0.0
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