PPI Wholesale Inflation Difficult Read — Changes in Methodology

The Producer Price Index for final demand increased by 0.2% in January, versus a Dow Jones consensus of 0.1% and a Bloomberg consensus of 0.2%. This advance followed a 0.1% gain in December and no change in November. On an ex-food, energy and trade services report, the gain was 0.1%, versus a gain of 0.2% expected by Bloomberg.

A 0.2% gain might not sound like much, but on a year-over-year basis it is larger than it seems. The index for final demand an unadjusted basis moved up 1.2% for the 12 months ended in January, which the BLS called the largest 12-month advance since a 1.2% gain in October 2013.

Energy prices rose 0.3% and food prices rose by 1.0% in January.

The new BLS calculation on core-PPI is going to take a while to get used to because the trade services reading is the most volatile component through time. Trade services are now said to measure changes in margins received by wholesalers and retailers.

Any time there are index calculation changes, you can imagine what is being said by critics — these are being changed so that they look better for the government, or they are being changed to hide the truth. Anyhow, we will leave that up to you to be the critic on that matter.