December 2018 Producer Price Index

Prices paid by producers and wholesalers for final demand goods and services fell 0.2 percent in December 2018 according to the Bureau of Labor Statistics’ Producer Price Index (PPI).  This decline followed upticks of 0.6 percent and 0.1 percent in October and November respectively.  With all of the months counted, PPI rose 2.5 percent last year, matching 2017’s gain.

Goods were the primary cause of the decline in December, but services were lower as well.  The final demand index for goods dropped 0.4 percent; most of this was a result of energy plummeting 5.4 percent.  In contrast, final demand foods rose 2.6 percent.  Prices for services edged down 0.1 percent after rising in each of the prior three months.

Price changes in earlier stages of output were mixed.  Processed goods for intermediate demand moved down 0.9 percent; it hasn’t dropped this much in a month since February 2016.  Once again, energy led this steep decline as diesel costs cratered 9.7 percent.  However, foods and feeds rose 0.5 percent as perishable foods soared 17.7 percent. 

Unprocessed goods for intermediate demand jumped 11.2 percent, its largest monthly uptick since November 2006.  Energy materials in the earliest stage of production surged 24.1 percent.  Ouch!  The index for unprocessed foods and feeds increased 3.1 percent.

Early stage services edged up 0.1 percent, rising for a fourth consecutive period.  Its year-over-year trend held steady at 3.1 percent which is a slight deceleration from the recent peak of 3.4 percent in July 2018. 

A couple of points stood out to Atlas in this report.  Food seems to have an upward bias for now; it is seen in every stage of the report, so it less likely to relent soon.  Meanwhile, energy data was a mixed bag, but the earliest stage results were really charged.  In the months ahead, Atlas will look to see if some of the large gains in the unprocessed portion of the energy segment begin seeping into the processed portion.  If it does, it increases the probability of higher energy prices for both businesses and consumers later this year.