Core PPI Much Higher Than Expected in February +2.4% YoY

Headline PPI was better than expected in February, but core was much worse than expected.  Headline inflation rose +.3% MoM (consensus +.4% MoM, prior +1% MoM), and the annual rate fell a full basis point to 6.4% from the 25-year high rate in January of +7.4% YoY.  Conversely, core PPI, which excludes food and energy, rose +.5% MoM (consensus +.2% MoM, prior +.4% MoM), and the annual rose to +2.4% YoY from +2.3% YoY the prior month, consensus had looked for the level to fall back to +2.1% YoY.  The annual core CPI rate peaked last year at +2.6% YoY in October.  The monthly rise in core was the largest since November 2006.  The price increases were broadbased in February, as everything from tableware to toilet paper saw price increases.

 

Energy cost increases slowed to +.8% MoM from the +1.5% MoM gain the prior month.  Gasoline prices rose +2.9% MoM for the second month in a row, while residential gas prices shot up +5.7% MoM in February versus only growing by +.7% MoM in January.  Residential electricity costs fell -.4% MoM.  Over the past year, energy prices have risen +19.6% YoY, with gasoline prices +43% YoY.  Residential gas and electricity prices are both us less than 3.5% YoY.  Food prices fell -.5% MoM, but remain +6% higher YoY.  Both food and energy prices are expected to rise in March.

 

Consumer goods prices rose +.3% MoM and are up +7.8% YoY.  Prescriptions (+1.3% MoM, +6.4% YoY) were the only category, other than energy related products, to increase over 1% MoM last month.  Passenger cars showed a resurgence, rising +.8% MoM.  There had been some thought that higher incentives would keep this growth restrained.  Car sales have been weak so far this year. Durable goods prices rose +.5% MoM and non-durable goods rose +.7% MoM.  Core consumer goods prices rose +.6% MoM, and are up +2.9% YoY.

 

Capital equipment prices rose +.5% MoM (+1.9% YoY).  Light truck prices rose +.8% MoM, but are unchanged YoY.  Computer equipment continues to get cheaper, falling -24% YoY.

 

The prices of crude goods accelerated to +3.7% MoM in February from +2.5% MoM in January and +1.1% MoM in December.  Over the past year, crude goods prices have risen +24.6% YoY.  Within crude goods, energy has risen +30% YoY and food has risen +18.5% YoY. 

 

At the intermediate goods level, prices rose a more restrained +.8% MoM, down from +1.4% MoM in January.  Year-over-year, intermediate producer prices have risen +8.8% YoY, with energy rising +22.6% YoY and food +18.7% YoY.

 

The link between producer and consumer price rises is not tight, so the increase in producer prices while consumer prices eased last month, may indicate further squeezing of profit margins as companies find it difficult to pass on rising input prices to consumers.