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Economy in Brief

U.S. Producer Prices Unexpectedly Decline
by Tom Moeller  August 12, 2016

The headline Final Demand Producer Price Index declined 0.4% (-0.2% y/y) during July following an unrevised 0.5% June rise. It was the first decline since March. A 0.1% rise had been expected in the Action Economics Forecast Survey. Lower food prices led the decline with a 1.1% fall (-2.6% y/y) which was accompanied by a 1.0% drop (-11.7% y/y) in energy prices. Excluding food & energy, the PPI fell 0.3% (+0.7% y/y), the third decline this year. Expectations were for a 0.2% increase.

The decline in food prices reflected a 9.8% drop (-19.4% y/y) in beef & veal costs, and reversed the prior month's gain. Fresh fruit & melon priced dropped 6.4% NSA (+14.7% y/y). Pasta product prices fell 0.5% (-6.0% y/y), the fifth monthly decline this year. Working the other way, fresh egg costs surged 43.3% (-55.0% y/y) and reversed the prior month's decline. Dairy product prices rose 2.3% (-1.9% y/y), the first increase this year.

Energy price weakness was paced by a 6.6% decline (-27.9 y/y) in gasoline prices. Home heating oil prices increased 1.3% (-27.3% y/y) following a 17.0% rise. Natural gas prices jumped 4.1% (0.8% y/y) and electric power costs improved 0.1% (-0.3% y/y).

Final demand prices for goods excluding food & energy remained unchanged (0.4% y/y) for a second straight month. Durable consumer goods prices declined 0.3% (-0.1% y/y) after no change, while core nondurable goods costs eased 0.1% (2.8% y/y) following a 0.3% rise. Capital equipment prices eased 0.1% (0.2% y/y) following five months of 0.1% gain.

The 0.3% service price decline (+1.0% y/y) was the third fall this year. It reflected a 1.2% drop (-0.4% y/y) in personal consumption trade prices while capital equipment trade prices fell 1.8% (+5.1% y/y). Government goods trade prices decreased 0.6% (+1.8% y/y). Passenger transportation prices improved 0.1% (-3.8% y/y). Prices for transportation & warehousing of goods gained 0.1% (-1.9% y/y). Service prices excluding each of these categories rose 0.2% (1.5% y/y) following a 0.4% rise.

Construction costs for final demand declined 0.6% (+0.8% y/y) following two months of 0.1% improvement.

Prices for intermediate processed goods rose 0.2% (-3.7% y/y) after two months of stronger 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.

Producer Price Index (SA, %) Jul Jun May Jul Y/Y 2015 2014 2013
Final Demand -0.4 0.5 0.4 -0.2 -0.9 1.6 1.4
   Excluding Food & Energy -0.3 0.4 0.3 0.7 0.8 1.7 1.5
   Excluding Food, Energy & Trade Services 0.0 0.3 -0.1 0.8 0.6 1.2 --
   Goods -0.4 0.8 0.7 -2.3 -4.3 1.3 0.8
      Foods -1.1 0.9 0.3 -2.6 -2.6 3.2 1.7
      Energy -1.0 4.1 2.8 -11.7 -20.6 -0.9 -0.8
      Goods Excluding Food & Energy 0.0 0.0 0.3 0.4 0.4 1.5 1.1
   Services -0.3 0.4 0.2 1.0 0.9 1.8 1.6
   Construction -0.6 0.1 0.1 0.8 1.9 2.9 1.8
Intermediate Demand - Processed Goods 0.2 0.9 0.8 -3.7 -6.9 0.6 0.0
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