PPI Ticks Marginally Higher Despite Plunging Energy Prices

The U.S. Department of Labor has released its Producer Price Index for final demand for the month of November. While economists had been looking for a small drop after the recent plunge in oil prices, PPI rose by 0.1% on a seasonally adjusted basis in November. This is down handily from the 0.6% gain seen in October and still under September’s 0.2% gain.

The Labor Department noted that the monthly gain in the final demand index was due to a 0.3% rise service prices. The index for prices on goods actually decreased by 0.4% in November.

Economists and investors like to look for the so-called core inflation reading, which excludes foods, energy and trade services. This core reading rose by 0.3% in November.

Year over year, on an unadjusted basis, the final demand index rose by 2.5% from November 2017. Producer prices at the core wholesale level, again sans foods, energy and trade services, rose by 2.8% from November 2017.

Other price data noted by the Bureau of Labor Statistics (BLS) were seen as follows:

• Prices for final demand transportation and warehousing services climbed 1.2%.
• The index for final demand services less trade, transportation and warehousing inched up 0.1%.

Most of the November advance in prices for final demand services can be traced to margins for fuels and lubricants retailing, which jumped 25.9%. While that was high, the BLS showed how much the drop in oil mattered for the PPI report to the downside:

Leading the November decrease in the index for final demand goods, gasoline prices dropped 14.0 percent. The indexes for liquefied petroleum gas, electric power, fresh fruits and melons, jet fuel, and primary basic organic chemicals also moved down.

Also moving higher in November were prices for the following groups:

• Health, beauty and optical goods retailing
• Cellular phone and other wireless telecommunications services
• Airline passenger services
• Food wholesaling
• Truck transportation of freight

The BLS noted a 3.5% price decline for guest room rentals (down 3.5%). The indexes for machinery and equipment wholesaling and for portfolio management also declined.

Stock prices already had been strong most of Tuesday morning, and on last look the Dow Jones industrial average was up 304 points at 24,727 and the S&P 500 was up 31 points at almost 2,669.

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