January 2019 Producer Price Index
Submitted by Atlas Indicators Investment Advisors on February 22nd, 2019
Prices paid by wholesalers and producers declined to start this year according to the Bureau of Labor Statistics. Their measure of Producer Price Index (PPI) dropped marginally, falling 0.1 percent in January 2019 and matching the prior month’s decline as well. Year-over-year, this price proxy has gained a tame 2.0 percent.
Looking further down the pike, price movements were split by category. Goods prices fell hard while services were up marginally. Energy was the primary mover on the goods side of the ledger. Processed goods for intermediate demand declined 1.4 percent, the steepest setback since September 2015; over 80 percent of the drop can be traced to processed energy goods’ decline of 6.5 percent. But even excluding energy, intermediate materials fell 0.3 percent. Unprocessed goods for intermediate demand were even worse; they cratered 9.3 percent to start the year, leaving us with the worst reading since January 2015. Once again, energy led the way, plummeting 19.0 percent. Over on the other side of the economy, the story was a little different as services for intermediate demand moved up 0.2 percent and put in their fifth consecutive monthly gain.
As you can see in the chart above, the trend for this measure of inflation is now slowing (the black line). Our economy is going through another period of lower energy prices. If this sluggishness continues, money no longer allocated to energy could find its way into other portions of business budgets. While not the Federal Reserve’s favorite measure of inflation, this iteration of PPI should help them justify holding rates steady for the next several Federal Open Market Committee meetings. However, services’ trend (the maroon line) has been inching up since October, and the year-over-year tally is now 3.2 percent, inflation isn’t completely missing from the equation. We’ll get more information on prices in the weeks ahead once the Bureau of Economic Analysis releases data on personal consumption expenditures.
