Producer Price Index (PPI)

The Producer Price Index for Final Demand (PPI FD) is yet another inflation indicator from the Federal Government, but instead of focusing on the consumer, it measures the average change over time in prices received by producers for domestically produced goods, services, and construction. In other words, PPI measures price changes from the perspective of the seller, whereas CPI measures changes from the perspective of the consumer.

PPI FD represents the final stage of production and is important for investors as it’s a reflection on company profit margins.

The latest Headline PPI FD for August came in at 0.7% month-over-month (MoM), up from 0.3% in July. PPI is up 1.6% on a year-over-year (YoY) basis, a significant jump from 0.8% YoY in July, and its second consecutive increase. Both figures were higher than consensus.

Core PPI FD –which excludes food, energy, and trade services– was up 0.3% in August and up 3.0% YoY (slightly higher than forecast).

Headline PPI FD is made up of both Goods and Services. The Goods component was up 2.0% from July and the Services component ticked up 0.2% (see chart below). Rising goods prices have driven the recent upturn in the PPI as the energy component is up 11% over the past two months. Additionally, the Services  segment is no longer declining at a rapid pace and  has stabilized between 2.2% and 2.6% YoY for each of the last four months.  

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