On April 12th the Bureau of Labor Statistics (BLS) released the numbers for the Producer Price Index for March. The index remained largely unchanged for core goods including food and energy. The analyst consensus called for a .3% change, whereas the actual number was 0%. The month-over-month change for goods, less food and energy, was predicted at .2%; however, the actual rise was .3%. Since the month-to-month change is often very volatile and hard to use to make solid long term predictions, the yearly change is also quoted. In the past 12 months the index has risen 2.8%, the lowest increase since last June (2.7%).
Finished core goods were up .3%. This change was mostly due to an increase in price for light trucks, passenger cars, and soap products. Contrary to what has been seen elsewhere in the market, the price for energy actually fell by 1% in March.
Intermediate core goods were up by .6%, a gain largely attributed to an increase in organic chemical prices. For intermediate goods, energy was also up 1.3%
The biggest concern brought about by the PPI release is the future of energy prices. While in the past year consumers have seen prices rise dramatically at the pump, the PPI does not show a dramatic increase. This leads some economists to believe that the jump in energy prices is just a temporary glitch. However, consumer and employer sentiment is trending the opposite direction.
The PPI is important to investors and economists because it is closely tied to the CPI (consumer price index) another BLS index. As many people know the CPI is the indicator of inflation. A large continuous increase in the PPI is very likely to lead to a large increase in the CPI.
The Producer Price index is released once per month. It is a weighted index that shows the price for goods at the producer and wholesaler level. The release includes multiple reports (both monthly changes and yearly changes) showing cost of goods with and without food and energy. While most news releases do not include the cost of food and energy it is important for investors to pay attention to these aspects. Everyone has to spend money on them and dramatic changes in those areas can significantly offset changes in other areas. It is important to note, the change in the price of goods is not a direct correlation to the cost of goods. It is a change in the price with respect to the weighted benchmark (much more info the BLS FAQ website).