Energy Drove Producer Prices Higher in August

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Prices for finished goods rose by 0.4% in August, according to the Bureau of Labor Statistics. It marks the second increase in producer prices in as many months. This reverses a trend from April through June when the producer price index (PPI) for finished goods was declining. Although the rise in August was the largest since March, it was still relatively small, and suggests that deflation still isn't a major concern at the producer level.

Let's start with the chart showing PPI for finished goods:

ppi 2010-08.png

This makes the downward trend's reversal since July pretty clear. You can also see that for most of 2010 producer prices have not changed that much. Over the trailing 12 months, however, producer prices have risen by 3.1%.

Energy drove the increase in producer prices for August, with a 2.2% increase -- its largest since January. Food prices declined a bit last month, down 0.3%. That brought the core PPI, which excludes food and energy, down to a 0.1% increase. Many economists think core inflation is a more important measure, since it takes out the often noisy components of food and energy. Here's how it has changed over the past year:

core ppi 2010-08.png

First, you can see that core PPI has been extremely stable over this time period. Second, the chart shows that producer price inflation is present, but very low.

In other stages of production, prices jump around a bit more from month to month. The prices for intermediate and crude goods both increased in August, by 0.3% and 2.3%, respectively. These moves remain in the range of how we've seen prices change at these stages of production over the past year.

PPI is a leading indicator for consumer prices, which BLS will report tomorrow. It's pretty likely we'll see something similar then. Prices remain relatively stable, with inflationary and deflationary pressures both muted.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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