Producer Prices Tick Up — the Largest Reading Since September 2012

Bloomberg was calling for 0.2% gains in both the headline and core PPI, while Dow Jones had an estimate of +0.5% for the headline and +0.2% for the core reading. We would rank this as an “in-line” report that is not expected to send the markets spinning too much in either direction.

While this was a low reading on the surface, it also represents the largest headline report in producer prices going back to September. Energy was down by 0.4%, although we would caution that we have more recently seen gasoline prices have risen for more than 30 days, so some of this may already be out of date. Food prices were up by 0.7% due to freeze issues and other delivery issues.

The Producer Price Index is based on a group of indexes measuring the change over time in the prices received by domestic producers of goods and services. The price change reported is from the perspective of the seller. The important issue about PPI over the Consumer Price Index (CPI) is that PPI usually leads CPI, but it generally takes a couple or few larger PPI reports to increase consumer prices, as businesses have a hard time immediately passing on higher costs to their customers at the retail level.