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Economy in Brief

U.S. Producer Prices Strengthen Unexpectedly
by Tom Moeller  July 14, 2016

The headline Final Demand Producer Price Index increased 0.5% (0.3% y/y) in June following an unrevised 0.4% May gain. It was the quickest rise since May of last year. A 0.3% rise had been expected in the Action Economics Forecast Survey. A 4.1% gain in energy prices (-11.4% y/y) was accompanied by a 0.9% increase (-2.3% y/y) in food prices. Excluding food & energy, the PPI strengthened 0.4% (1.3% y/y), the quickest rise since January. Expectations were for a 0.1% increase.

Energy price strength was driven by a 9.9% increase (-22.1% y/y) in gasoline prices, which added to robust gains during the prior three months. Home heating oil prices also were strong and increased 17.0% (-27.3% y/y) following an 18.5% rise. Natural gas prices eased 0.7% (-4.9% y/y), down for the third month in four, but electric power costs increased 0.5% (-0.3% y/y).

The increase in food prices reflected a 12.1% jump (5.6% y/y) in grain prices as well as a 7.6% rise in oilseed prices (17.0% y/y). Beef & veal costs strengthened 7.5% (-12.9% y/y), but fresh egg costs declined 25.9%, off by two-thirds y/y. Dairy product priced eased 0.1% (-4.6% y/y), down in each month this year.

Final demand prices for goods excluding food & energy remained unchanged (0.5% y/y) after two months of 0.3% increase. Durable consumer goods prices were flat (0.5% y/y) after a 0.3% increase, while core nondurable goods costs increased 0.3% (2.7% y/y) following no change. Capital equipment prices edged 0.1% higher (0.5% y/y) for the fifth straight month.

The 0.4% service price increase (1.5% y/y) was the firmest since January. It reflected a 0.8% rise (1.8% y/y) in personal consumption trade prices improved from 0.6% while capital equipment trade prices gained 0.3% (1.8% y/y). Government goods trade prices increased 0.4% (2.8% y/y). Passenger transportation prices rebounded 2.3% (-4.1% y/y). Prices for transportation & warehousing of goods remained unchanged(-1.9% y/y). Service prices excluding each of these categories rose 0.3% (1.5% y/y) following a 0.2% decline.

Construction costs for final demand gained 0.1% (2.0% y/y) for a second consecutive month.

Prices for intermediate processed goods jumped 0.9% (-4.1% y/y) after a 0.8% increase.

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.

Fed Communication and the Zero Lower Bound from the Federal Reserve Bank of San Francisco is available here.

Producer Price Index (SA, %) Jun May Apr Jun Y/Y 2015 2014 2013
Final Demand 0.5 0.4 0.2 0.3 -0.9 1.6 1.4
   Excluding Food & Energy 0.4 0.3 0.1 1.3 0.8 1.7 1.5
   Excluding Food, Energy & Trade Services 0.3 -0.1 0.3 0.9 0.6 1.2 --
   Goods 0.8 0.7 0.2 -2.2 -4.3 1.3 0.8
      Foods 0.9 0.3 -0.3 -2.3 -2.6 3.2 1.7
      Energy 4.1 2.8 0.2 -11.4 -20.6 -0.9 -0.8
      Goods Excluding Food & Energy 0.0 0.3 0.3 0.5 0.4 1.5 1.1
   Services 0.4 0.2 0.1 1.5 0.9 1.8 1.6
   Construction 0.1 0.1 0.8 2.0 1.9 2.9 1.8
Intermediate Demand - Processed Goods 0.9 0.8 0.3 -4.1 -6.9 0.6 0.0
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