US PPI: BENIGN HEADLINES BUT CORE CRUDE PRICES ACCELERATING
By Denny Gulino
WASHINGTON (MktNews) - Although the U.S. finished goods index and the overall core rate remained only modestly higher to motionless in July, the earliest stage of processing is showing significant acceleration in prices, the Bureau of Labor Statistics reported Friday morning.
The overall July Producer Price Index was up just 0.2%, a year-to-date acceleration of 1.7%, and the overall core rate was flat, for a year-to-date annualized decline of 0.4%.
But core crude prices in July rose 2.3%, after a 0.5% rise in June and another 2.3% increase in May. Prior to that, eight of 10 months had shown declines.
"We are seeing continued stable prices for finished core items," BLS analyst Brian Catron told Market News International as the report was being made public. "This particular month is unchanged."
"But," he continued, "it has been a fairly small set of movements in the last few months. That's a little different from what you're seeing in the earlier stages of processing, where prices do seem to be picking up a little up."
To illustrate the difference, Catron looked at the year-to-date rise for core crude materials. "This year to date, on a seasonally adjusted annual-rate basis, for the first seven months in 1999 we have a 7.6% increase for crude core. In the first seven months of 1998, we would be looking at a negative 10.3%."
And yet, the broadest measure of crude goods prices, including food and energy, slipped another 0.2% in July.
"At the intermediate level, where the overall rise was 0.6%, the increase in core prices was 0.4%. But on a smaller scale, the early pipeline pressures were also evident, Catron said.
"For intermediate core, for the first seven months, it's up 1.6%. If I look back to July of last year, it was a negative 1.0%," he said.
"If you were looking for things like a materials cost passthrough, you would expect that transition from earlier stage to later stage (price increases), but it doesn't seem to have manifested itself as yet," Catron said.
"It's not a simple picture. Finished core rate passenger car prices are down 2.1% over past 12 months. But if you just look at rate of change, not annualized, for first part of 1999, it's a 2.5% decline. We have had some series of price declines for passenger cars, which carries a 9.8% weight in the overall core index."
Catron said the BLS does "not do a diffusion analysis on categories in the earlier stages of processing, but a rough look shows there do seem to be a greater number of key subindexes under intermediate category that show positive signs."
Instead of just construction materials, which are still under heavy pressure, other categories such as durable manufacturing are showing more positive price movements. "Other than energy-affected items there does seem to be a fairly consistent growing of these positive signs," Catron said. "But it's still not a dramatic number."
Capital equipment, which has been oscillating around zero for a year and is down a tenth of a percent for 12 months, was off 0.1% in July.
In June, an unexpected decline in auto and light truck prices pulled the PPI into negative territory, although even with the vehicles' influence, both the finished goods index and the core rate for June would have been flat. In July, seasonally adjusted passenger cars were down again, 0.2%, while light trucks were off 0.4%.
Softwood lumber, an example of a construction material showing spectacular increases, was up 4.5% in June and in July rose another 5.9%. Plywood in July was up in price 6.2%.
Expectations in a Market News International survey of economists centered on a gain of the overall Producer Price Index for July of 0.3%, compared to its 0.1% decline in June. The core rate was seen to be up just 0.1%. |
