The Producer Price Index (PPI) Rose 0.1% in July

 
Implications: The zig-zag pattern in producer prices continues as we start the second half of 2014, but the underlying trend points to some acceleration in inflation. Following a dip in May and a jump in June, producer prices rose a modest 0.1% in July. The gain was all from services, as goods prices were flat in July. The rise in service prices was led by transportation and warehousing, up 0.5% in July. Prices for goods were flat in July as a 0.6% drop in energy prices offset a 0.4% increase in food and a 0.2% gain in goods excluding food and energy. Through the first seven months of 2014, producer prices are up at a 2.5% annual rate, well above the 1.4% rate over the same period in 2013. The acceleration is more prevalent in prices for goods, which account for nearly 35% of the total index. Goods prices are up 2.0% in the past twelve months but have climbed at a 2.9% annual rate so far in 2014. By contrast, services are up 1.5% from a year ago and have climbed at a 2.2% rate in the past seven months. Prices further back in the production pipeline (intermediate demand) do not yet confirm a continued acceleration in inflation. Prices for processed goods are up at a 1.8% annual rate in the past three months, nearly identical to the 1.6% gain over the past year. Prices for unprocessed goods saw a sharp 2.7% decline in July and are down at a 13.7% annual rate in the past three months. But intermediate demand prices are highly volatile and we expect prices to move higher over the coming months. Taken as a whole, the trend in producer price inflation is hovering around 2%. In other recent news, trade prices showed little inflation in July. Import prices declined 0.2% and were unchanged excluding oil; export prices were unchanged overall, but up 0.3% excluding agriculture. In the past year, import prices are up 0.8% while export prices are up 0.4%. We expect more inflation in the year ahead given loose monetary policy.

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Posted on Friday, August 15, 2014 @ 9:32 AM

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.