The latest Producer Price Index for Finished Goods is out, and its screaming hot: It advanced 1.2% in July (seasonally adjusted). 1.2% headline and 0.7% core vs consensus estimates of 0.6% and 0.2%.
This follows a 1.8% jump in June and a 1.4% rise in May. The earlier stages of processing were even hotter. Prices received by manufacturers of intermediate goods moved up 2.7% in July versus 2.1-% in the prior month, while prices for crude materials climbed 4.2% after a 3.7% in June.
Year-over-year gains were 9.8% headline — the highest reading since 1981, while the 3.5% core (why do we still mention this?) was the most since ’91. I cannot figure out why there was a big jump in car and truck prices.
Bottom line: These were scorching hot price increases. And, as Michael Donnelly astutely notes, PPI did not adopt the whacky ideas (hedonics, substitutions, weightings, OER) that the CPI did adopted over the years — especially, the Boskin Commission’s junk recomendations. That’s largely because PPI is not as politically important, nor does it move any government payouts.
So we can fairly compare the current PPI of today — 9.8% — very easily with the 10% PPI back in 1981. The two are actually very comparable.
Note that in theory, headline PPI number should cool in coming months due to the big drop in commodity prices. However the core rate won’t drop as quickly, as many price hikes have been put in place over the past 6 months, and are working their way through the supply chain.
Let’s look at a few related charts:
chart via Jake at EconompicData
Lastly, a comparison of 4 PPIs: Germany also announced that wholesale prices for last month were a
higher than forecast at 8.9%. One look at the chart of relative PPI
changes for these two countries, as well as for the U.K. and China,
reveals a recent pattern that some might find disconcerting.
PPI: US, Germany, U.K. and China
Chart via Mike Panzner
Producer Price Indexes — July 2008
BLS, AUGUST 19, 2008
Bureau of Labor Statistics, U.S. Department of Labor