February 2018 Producer Price Index

Prices paid by producers and wholesalers rose in February according to the Bureau of Labor Statistics’ Producer Price Index (PPI).  This cost proxy increased 0.2 percent, slowing from 0.4 percent in January.  Despite the monthly deceleration, the annual trend level increased marginally to 2.8 percent from 2.7 percent.  Excluding food and energy (since they are volatile) leaves the core-PPI; this measure increased 0.2 percent for the period (slowing from 0.4 percent in January) and 2.7 percent (versus 2.5 percent) on a year-over-year basis. 

Price changes within the earlier stages of output were biased higher.  Processed goods for intermediate demand held increased 0.7 percent for a second consecutive period.  However, the twelve-month trend accelerated to 4.8 percent from 4.6 percent.  Unprocessed goods for intermediate demand jumped 2.8 percent after a reading of just 0.9 percent to start 2018; year-over-year, this earliest stage jumped to 5.6 percent from 2.5 percent.  At first glance, this might seem unusually fast, but there have been ten months in the previous 12 with higher readings, including 19.2 percent in February 2017.  Finally, services for intermediate demand increased to 0.5 percent from just 0.1 percent.  This is tied for the second highest level in the past twelve months with October 2017 reaching 0.6 percent and April matching the latest uptick.  Year-over-year, these early-stage services are up 2.9 percent which is the same as in the prior two months. 

The twelve-month trend is not at an alarming level, but there appears to be some role reversal occurring.  Prices for services are suddenly picking up, but goods are partially offsetting this.  However, services are a larger part of the American economy, so if there is a strengthening uptick in that category, the overall PPI tally could begin moving higher at a faster pace.