The United States​ Producer Price Index (PPI): Infinitus Est Numerus Stultorum.

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Via Mr. Anothy Sanders of The Snake Hole Lounge 

Just when I though Producer Price Inflation (Final Demand) finally hit 3% … they pulled it back in (to 2.4% YoY). 

Yes, PPI Final Demand YoY is the highest since January 2012 at 3.1% YoY.

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But if we take out energy, it is 2.4% YoY.

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Yes, PPI Final Demand less Energy is  only 2.4% YoY, but the heat is on.

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Review Notes 

Market Sensitivity: Very high.
What Is It: Measures the change in prices paid by businesses.
Most Current News Release on the Internet:www.bls.gov/ppi

Home Web Address: www.bls.gov
Release Time: 8:30 a.m. (ET); announced two to three weeks after the reporting month ends.
Frequency: Monthly.
Source: Bureau of Labor Statistics, Department of Labor.
Revisions: The monthly data is subject to one revision that is published four months later. Annual revisions are published in February with the January data, and it can go back five years.

Via-  Bernard Baumohl. “The Secrets of Economic Indicators:

Starting today are the FOMC meetings and they will be” Janet Yellen’s last presser as Fed Chair, so whatever you need to do to prepare yourself mentally for that, go ahead and get started.” Here’s what BofAML is expecting from her final performance:

  1. Future path of the hiking cycle: We think Yellen will reiterate the need to proceed with a gradual hiking cycle, even in the face of rising inflation. She will reiterate that most models are still pointing to a low R*, which means a need to be cautious with the speed of rate hikes.
  2. Tax reform: We think Yellen will likely be inclined to offer a bit more information about the impact of tax cuts than Powell was in his recent testimony, referencing historical episodes and the literature. She will note that tax cuts should generate a short-term boost to the economy, but will highlight concerns over the crowding out of private investment from deficit expansion. Yellen will also likely caution about adding to the debt given the official CBO estimates of an upward trend, all else equal.
  3. Flattening of the yield curve: Yellen will likely be asked about how the Fed thinks about the flattening of the yield curve. She should reiterate that the Fed is not just concerned about the shape of the yield curve, but also the level. Moreover, they are looking at a wide range of financial market indicators and others point to further easing of financial conditions. That said, the yield curve is something that the Fed should keep an eye on to make sure credibility is maintained.

The Fed and especially Ms. Janet Yellen will be watching this economic print and if will have any impact on the probable hike of interest rates set for December by the Fed. After this Ms. Yellen is off to Economic Ph.D. heaven.

Janet-Yellen-at-Oktoberfest-with-a-Beer-112430

Market Impact
Bonds

The PPI may not be an ideal leading indicator of consumer prices, but you’d never know that from the way the bond market reacts. Producer price inflation is one of the hottest economic indicators released by the government. Fixed-income investors intuitively believe that a jump in the PPI can be a wake-up call that consumer price inflation is headed higher in the future. Second, since it is the first key inflation gauge the government puts out every month, the market tends to view it with greater sensitivity. If the PPI detects rising price pressures in the economy, it could depress bond prices and force interest rates higher. No change, or an actual decline in producer prices, is viewed favorably by bond holders because it suggests the absence of any troublesome inflation.

Stocks

For the most part, equities respond much the same way bonds do to signs of inflation. A jump in the PPI means higher production costs for companies, and this can erode profits and endanger dividends. Although some stock investors argue that a little inflation is a good thing because it allows producers to charge more for goods, which bolsters revenues, there is a point beyond which inflation pressures can do more harm than good to equities. The problem is that there is no consensus on where that threshold is.
Dollar

A rise in the PPI is a tough call for participants in the foreign exchange market. Normally, the dollar benefits from a little pickup in inflation, since this propels U.S. short-term interest rates higher. A fast-rising inflation report, however, can hurt the dollar, because the Federal Reserve can respond so aggressively as to jeopardize U.S. economic growth altogether. By and large, a gradual rise in inflation that is accompanied by a well-timed tightening of monetary policy is likely to lead to an appreciation of U.S. currency.”

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PPI Crude Goods: 

Product detail: In October, prices for crude petroleum increased 6.6 percent.

The indexes for slaughter cattle; ungraded chicken eggs; fresh vegetables (except potatoes); and construction sand, gravel, and crushed stone also advanced. In contrast, prices for carbon steel scrap fell 9.5 percent. The indexes for wastepaper, slaughter hogs, natural gas, and raw milk also moved lower.

PPI Intermediate Goods:

Stage 4 intermediate demand: The index for stage 4 intermediate demand moved up 0.5 percent in October, the fifth consecutive rise. In October, prices for total goods inputs to stage 4 intermediate demand climbed 0.6 percent, and the index for total services inputs advanced 0.3 percent. (See table D.) Increases in the indexes for diesel fuel; portfolio management; industrial chemicals; commercial electric power; metals, minerals, and ores wholesaling; and industrial electric power outweighed declines in the indexes for loan services (partial), gasoline, and food and alcohol wholesaling. (See table 6.) For the 12 months ended in October, prices for stage 4 intermediate demand climbed 3.4 percent, the largest increase since a 3.6-percent advance in December 2011.

Stage 3 intermediate demand: Prices for stage 3 intermediate demand moved up 0.4 percent in October, the same as in the prior month. In October, the index for total goods inputs to stage 3 intermediate demand advanced 0.7 percent, and prices for total services inputs climbed 0.3 percent. Increases in the indexes for industrial chemicals; diesel fuel; metals, minerals, and ores wholesaling; ungraded chicken eggs; jet fuel; and fuels and lubricants retailing outweighed decreases in the indexes for gasoline, slaughter hogs, and food and alcohol wholesaling. For the 12 months ended in October, prices for stage 3 intermediate demand advanced 5.2 percent, the largest rise since moving up 5.4 percent in December 2011.

Stage 2 intermediate demand: The index for stage 2 intermediate demand advanced 1.0 percent in October following a 0.2-percent rise a month earlier. In October, prices for total goods inputs to stage 2 intermediate demand increased 1.5 percent, and the index for total services inputs moved up 0.5 percent. Higher prices for crude petroleum; plastic resins and materials; industrial chemicals; portfolio management; securities brokerage, dealing, and investment advice; and staffing services outweighed declines in the indexes for television advertising time sales, carbon steel scrap, and wastepaper. For the 12 months ended in October, prices for stage 2 intermediate demand climbed 3.6 percent.

Stage 1 intermediate demand: Prices for stage 1 intermediate demand moved up 0.6 percent in October, the fifth straight advance. In October, the index for total goods inputs to stage 1 intermediate demand increased 0.7 percent, and prices for total services inputs climbed 0.5 percent. Advances in the indexes for industrial chemicals; diesel fuel; metals, minerals, and ores wholesaling; fuels and lubricants retailing; commercial electric power; and chemicals and allied products wholesaling outweighed decreases in prices for carbon steel scrap, wastepaper, and loan services (partial). For the 12 months ended in October, the index for stage 1 intermediate demand climbed 6.7 percent, the largest increase since a 6.8-percent rise in March 2017.

 

PPI Finished Goods: 

Final demand services: The index for final demand services rose 0.5 percent in October, the largest increase since moving up 0.5 percent in April. Three-quarters of the October advance can be traced to a 1.1-percent rise in margins for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.) The index for final demand transportation and warehousing services increased 0.8 percent. Prices for final demand services less trade, transportation, and warehousing edged up 0.1 percent.

Product detail: Nearly half of the increase in prices for final demand services can be attributed to margins for fuels and lubricants retailing, which surged 24.9 percent. The indexes for machinery and equipment wholesaling; transportation of passengers (partial); apparel, jewelry, footwear, and accessories retailing; chemicals and allied products wholesaling; and portfolio management also advanced. In contrast, margins for food retailing moved down 2.1 percent. The indexes for food and alcohol wholesaling and for loan services (partial) also decreased. (See table 4.)

Final demand goods: Prices for final demand goods moved up 0.3 percent in October, the third straight increase. Over two-thirds of the October rise can be traced to the index for final demand goods less foods and energy, which advanced 0.3 percent. Prices for final demand foods moved up 0.5 percent. The index for final demand energy was unchanged.

 

Table A. Monthly and Annual Percent Changes in Selected Stage-of-Processing Price Indexes

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Table B. Monthly and Annual Percent Changes in Selected Price Indexes for Intermediate Goods and Crude Goods

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-R.W.N II
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