Home   Logon   Mobile Site   Research and Commentary   About Us   Call 1.800.621.1675 or Email Us       Follow Us: 

Search by Ticker, Keyword or CUSIP       
 
 

Blog Home
   Brian Wesbury
Chief Economist
 
Click for Bio
Follow Brian on Twitter Follow Brian on LinkedIn View Videos on YouTube
   Bob Stein
Deputy Chief Economist
Click for Bio
Follow Bob on Twitter Follow Bob on LinkedIn View Videos on YouTube
 
  The Producer Price Index Dropped 0.5% in September
Posted Under: Data Watch • PPI

 
Implications: No two ways about it, producer prices plunged in September. The 0.5% monthly decline was the largest single-month drop since January, and the second largest monthly decline in the series going back to late 2009. That said, roughly two-thirds of the drop can be attributed to a 5.9% decline in energy prices. Also, continuing the trend we've seen with other economic indicators - think ISM reports - there is a clear difference in activity between the goods sector and the (much larger) service sector. While goods prices are down 5.1% from a year ago, services prices are up 1.0% and have shown acceleration in recent months, up 1.1% annualized in the past six months and 1.5% annualized in the past three months. And if you take out just energy, prices for final demand goods are up 0.6% in the past year. In other words, once energy prices stabilize, producer prices will start to move higher. The Fed has reiterated that falling energy prices are a transitory factor. So, in theory, these declines should not play a significant role when they decide whether to raise rates later this year. Core producer prices, which take out both the volatile food and energy components, declined 0.3% in September but are up 0.8% in the past year. In other words, we are not in a persistent deflationary environment. We'd like to see the Fed raise rates and think a rate hike in December remains possible. Holding short-term rates near zero distorts the nature and timing of economic and financial activity and our economy will eventually pay a price for that. Once energy prices stop falling, overall consumer inflation measures will hit the Fed's 2% target within a year. However, right now, the market expects the Fed to hold off on the first rate hike until March and today's report gives the Fed plenty of ammunition to meet this expectation.

Click here for PDF version
Posted on Wednesday, October 14, 2015 @ 9:52 AM • Post Link Share: 
Print this post Printer Friendly

These posts were prepared by First Trust Advisors L. P., and reflect the current opinion of the authors. They are based upon sources and data believed to be accurate and reliable. Opinions and forward looking statements expressed are subject to change without notice. This information does not constitute a solicitation or an offer to buy or sell any security.
 
The information presented is not intended to constitute an investment recommendation for, or advice to, any specific person. By providing this information, First Trust is not undertaking to give advice in any fiduciary capacity within the meaning of ERISA, the Internal Revenue Code or any other regulatory framework. Financial advisors are responsible for evaluating investment risks independently and for exercising independent judgment in determining whether investments are appropriate for their clients.
First Trust Portfolios L.P.  Member SIPC and FINRA.
First Trust Advisors L.P.
Home |  Important Legal Information |  Privacy Policy |  Business Continuity Plan |  FINRA BrokerCheck
Copyright © 2019 All rights reserved.