Lower Energy Prices Reduce Headline PPI, But Core Rises to 17-Year High

Lower energy prices (-4.6% MoM, and biggest monthly drop in almost two years) let producer price inflation fall even more than expected in August, and for the first time in 2008. The headline PPI fell -0.9% MoM (consensus -0.5%, prior +1.2%) and eased back to 9.6% YoY from +9.8% in July. The market had looked for a further surge higher to +10.2% YoY. Core PPI, which excludes food and energy costs, came in closer to expectations, helped by falling vehicle prices. Over the past year, core PPI has continued to rise, growing by +3.6% YoY in August versus +3.5% YoY in July. This puts core PPI at the highest level since 1991. On a monthly basis, core PPI rose +.2% MoM, as expected, down from the +0.7% MoM pace of the prior month when oil prices spiked to a new record high. Excluding just energy, prices rose +.2% MoM and +5% YoY. Excluding only food, prices fell -1.2% MoM and rose +9.8% YoY. Consumer goods fell -1.2% MoM in August, but are up 12% YoY. The declines this month were led by natural gas falling -5% MoM and gasoline declining by -3.5%. The largest increase for a major category was in women’s apparel, which rose +.9% MoM. Passenger car prices eased back down, falling -0.3% MoM after rising +1.4% MoM in July. Capital goods prices rose +0.1% MoM (+3.2% YoY). This category includes computers (-1.2% MoM) and light trucks (-1.9% MoM), as well as civilian aircraft (+0.7% MoM). Intermediate goods prices fell for the first time in over six months, easing down by -1% MoM, but are still -17% higher YoY. Excluding food and energy, intermediate prices rose a relatively robust +1.7% MoM, which will remain a concern. Crude goods prices fell an even stronger -12% MoM, but are still up +38% YoY. The large drop in crude goods prices was for energy, which fell -20% MoM, but is still +59% higher YoY. The Fed will appreciate these inflation numbers, which supports their assertion that inflation will moderate as the economy slows. Slowing growth, both in the US and around the world, are helping ease the demand pressures for goods and commodities.