Thursday, February 16, 2012

Producer Price Inflation Lowest in a Year; For Finished Goods, 0% Over the Last Four Months

Some highlights of the BLS report today on Producer Prices for January:

1. The annual inflation rate for crude goods (including crude energy materials and crude foodstuffs and feedstuffs) fell to 4.5% in January, the lowest rate in more than two years, since a 4.8% rate in November 2009.  As recently as June 2011, inflation for crude goods was more than 26% (see chart).

2. The annual inflation for intermediate goods fell to 4.2% in January, the lowest rate since December 2009, and down from a recent high of 11.5% in July (see chart).  On a monthly basis, the prices for intermediate goods have fallen or remained flat for five out of the last six months. 

3. Producer price inflation for finished goods fell to 4.1% in January on an annual basis, the lowest rate in a year, since a 3.6% inflation rate in January 2011 (see chart).  The annual inflation rate for finished goods reached a three-year high of 7.1% last July, and has fallen in five out of the last six months since then.  On a monthly basis, prices for finished goods have fallen in two out of the last four months.  The price index for finished goods in January 2012 at 193.5 was slightly below the index level in September 2011 of 193.6, so there has been a very slightly downward pressure on prices for finished goods over the last quarter.

Bottom Line: At the producer level, there don't appear to be any inflationary pressures; and in fact, the trend in annual inflation for crude and intermediate goods has been generally downward for the last several years, which will likely translate into lower inflation for finished goods over the next several months.

Update: The chart below shows that the price index for finished goods (seasonally adjusted) has been flat for the last five months, with an inflation rate of 0% since September.


23 Comments:

At 2/16/2012 10:48 AM, Blogger morganovich said...

finished goods prices were up 4.1% from a year ago (jan-jan).

how is that a lack of inflationary pressure?

sure, it's better than the 7% we saw in the summer, but 4.1% is still pretty high.

it's also higher than the 3.6% year to year we saw last january.

this series has seasonality in it.

you generally get bigger y2y moves in the summer.

i really do not see how you are getting to your conclusions from his data.

are you arguing that 4.1% is no inflationary pressure?

 
At 2/16/2012 11:03 AM, Blogger Jon Murphy said...

finished goods prices were up 4.1% from a year ago (jan-jan).

how is that a lack of inflationary pressure?


Considering the 10-year average rate is 4.6%, it looks like inflation is running below.

 
At 2/16/2012 11:06 AM, Blogger Jon Murphy said...

Although, if you look at the 40-year average of 3.6%, then inflation is up.

Hurrah for averages!

 
At 2/16/2012 11:49 AM, Blogger Benjamin said...

The Chicken Inflation Littles just don't get it. Inflation is dead.

If you want to lick inflation, move to Japan. From 1992 to 2008, industrial production doubled in the USA, while the CPI clocked in at 3 percent to 6 percent.

In the same period, industrial production fell 20 percent in Japan, while the Nippon stock market fell 75 percent, and their prperty values fell by 80 percent (and are still falling).

The yen has nearly doubled against the dollar in that time frame.

Tight money does not work. The cost of beating inflation to zero is perma-deflation-rececession.

Japan has been an epic failure for the Theo-Monetarists.

 
At 2/16/2012 11:51 AM, Blogger Benjamin said...

In addition, Perry was being too nice. In five of the last six months, the price for intermediate goods was flat to down, according to the PPI report.

We are seeing active deflation in intermediate goods.

The Chicken Inflation Littles? They see inflation under every leaf.

 
At 2/16/2012 11:54 AM, Blogger Mark J. Perry said...

Benjamin: I mention that in Point #2.

 
At 2/16/2012 12:03 PM, Blogger juandos said...

Yeah, morganovich's comment makes me want to ask, "define moderate"...

 
At 2/16/2012 12:10 PM, Blogger morganovich said...

that point about intermediate goods is just seasonality.

you are looking at sequential numbers.

year on year numbers are up considerably.

 
At 2/16/2012 12:13 PM, Blogger morganovich said...

go to page 4 of the release..

that's intermediate goods by month.

from a year ago, they are up 4.25%, actually MORE than finished goods.

you are just mistaking seasonality for dis/deflation.

 
At 2/16/2012 12:19 PM, Blogger morganovich said...

crude goods, (p6) are up even more at 4.5% year over year.

january tends to be where this series bottoms every year (as inventory gets sold down post holidays and full production has not heated up yet)

you could have made this same (erroneous) claim last year before prices soared into the summer.

in june 2011: (vs year ago)

crude goods: +26.1%
intermediate: +10.9%
finished: +6.9%

that was the seasonal high.

watch for this number to rise for the next several months on a y2y basis.

this is a very seasonal series.

 
At 2/16/2012 12:53 PM, Blogger morganovich said...

mark-

you should extend that last chart to encompass several years.

one year of data does not reveal seasonal patterns.

 
At 2/16/2012 1:02 PM, Blogger james said...

I can't understand why the government leaves out food and energy when they report the inflation numbers. Or I should say they report inflation as the core rate thats excluding food and energy.

 
At 2/16/2012 1:06 PM, Blogger Benjamin said...

Dr Perry: My embarrassed apologies!

 
At 2/16/2012 1:25 PM, Blogger Jon Murphy said...

I can't understand why the government leaves out food and energy when they report the inflation numbers.

The idea is energy and food prices fluctuate so much and are so volatile they do not accurately reflect the underlying, or core, inflation.

 
At 2/16/2012 1:46 PM, Blogger juandos said...

"The idea is energy and food prices fluctuate so much and are so volatile they do not accurately reflect the underlying, or core, inflation"...

In other words politics as usual...

 
At 2/16/2012 4:09 PM, Blogger Benjamin said...

Yahoo! Dow over 12.9k and headed to 13k.

Die shorts, die, die die!!!!!

 
At 2/16/2012 5:05 PM, Blogger morganovich said...

"The idea is energy and food prices fluctuate so much and are so volatile they do not accurately reflect the underlying, or core, inflation."

perhaps once, not recently.

generally, headline and core have tended to converge.

this has not been the case for several years.

at that point, "core" rather than a way to smooth volatility becomes a misleading metric that misses big jumps in key commodities.

 
At 2/16/2012 7:26 PM, Blogger juandos said...

"generally, headline and core have tended to converge"...

Oh yeah morganovich, in what area or areas of the country?

 
At 2/17/2012 11:02 AM, Blogger morganovich said...

juandos-

the country as a whole.

http://www.comerica.com/Comerica_Content/Corporate_Communications/Docs/200605_National_Economic_Brief.pdf

the big difference has come since 2000 when core has consistently been well below headline.

part of this is that the hedonic adjustments used on most products cannot be applied to food and energy. some of it is just more price pressure in those areas due to global demand.

but for the last decade, headline has been 1.5-2% higher per year than "core".

given that food and energy are clearly big parts of consumption and not terribly optional, this seems to imply we need to look hard at abandoning core as a relevant metric.

it may have been a way to smooth volatility without skewing the results at one point, but not anymore.

it has become increasingly unrepresentative of the consumer experience.

 
At 2/17/2012 11:34 AM, Blogger juandos said...

"part of this is that the hedonic adjustments used on most products cannot be applied to food and energy. some of it is just more price pressure in those areas due to global demand"...

"hedonic adjustments", eh?...

O.K. morgaovich, I guess that sort of makes sense...

"it has become increasingly unrepresentative of the consumer experience"...

Amen to that!

Thanks for the explanation m...

 
At 2/17/2012 12:21 PM, Blogger bart said...

The idea is energy and food prices fluctuate so much and are so volatile they do not accurately reflect the underlying, or core, inflation.


The simple answer, if real apples to apples comparison is the goal, would be to use a moving average for smoothing food and energy... but it isn't, as things like OER, hedonics, Boskin etc. prove.

 
At 2/17/2012 1:25 PM, Blogger Ron H. said...

juandos: ""hedonic adjustments", eh?...

"it has become increasingly unrepresentative of the consumer experience"...
"

and this:

"Consumers sometimes have the impression that the government must be missing something..."

No kidding!

 
At 2/17/2012 4:13 PM, Blogger VangelV said...

The simple answer, if real apples to apples comparison is the goal, would be to use a moving average for smoothing food and energy... but it isn't, as things like OER, hedonics, Boskin etc. prove. ...

You just gave a good reason to go on a slight diversion so I will take advantage of it.

This who idiocy depends on a few assumptions. One of them is that there is some magical basket out there that tells us what consumers are experiencing and that government knows what it is. But as you well know each individual has his/her own basket of goods that is not the same throughout life. You certainly care more about rent, alcohol, and food prices when you are young, single, and starting out in a job than you do when you are older, have two kids in university, and own your own home outright.

But that is not all. Even if we all magically happened to have the same type of goods and services in our consumption basket there is the assumption that someone could figure out the price index. But is that really possible? Take a look at your apple to apple comparison by looking at just apples. How can you figure out the true price change for something as simple as an apple? After all, there are all kinds of them. They are of different size, shape, and quality. They usually have to be transported to the area where the consumer lives and the cost of that transport varies not only by area but by season within that area. There are all kinds of variations in prices that have to do with store promotions, natural weather conditions, local economic conditions, even local zoning laws. This means that different consumers of apples will pay different prices. So how does some statistician determine the national baseline and compare it to the previous baseline?

The bottom line is that this entire game is full of half-assed guesstimates made by people who are too far removed from the actual market to be very useful. Most of the people who work for the BLS are not as capable of discerning price trends as your typical diligent housewife. And that is why we need to be very skeptical whenever anyone claims to tell us exactly what is happening to price levels.

 

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