The Bureau of Labor Statistics reported that the producer price index (PPI) increased 0.8 percent in September, its largest increase since April. (All percentages are in annual rates.) The PPI was unchanged in August. The largest driver of the increase was a jump in energy prices, which rose 2.3 percent in September after falling for the previous three months. Food costs were also higher, up 0.6 percent. Core inflation, which excludes food and energy prices, rose 0.2 percent in September or 2.5 percent since last year.
For manufacturers, the cost of manufactured goods rose 0.3 percent for the month and 8.9 percent since September 2010. Over the course of the last year, industries with the largest producer price gains include petroleum and coal products (up 36.3 percent), textile mills (up 13.5 percent), primary metals (up 11.8 percent), beverage and tobacco manufacturing (up 10.5 percent), chemicals (up 9.2 percent) and food manufacturing (up 8.9 percent). Many of these same industries experienced the fastest monthly gains, as well.
For all industries, intermediate goods grew 0.6 percent in September, reversing the 0.5 percent decline in August. As with final goods, energy (up 1.7 percent) and food (up 0.9 percent) costs were the major drivers of this increase. Similarly, crude material prices rose dramatically (up 2.8 percent), led by a 7.7 percent jump in energy costs.
These numbers highlight the volatility of producer prices, especially pertaining to energy costs. Recent declines in energy prices have stemmed from an appreciation in the dollar and expectations of falling demand, particularly with traders anticipating a global slowdown. Yet, despite this volatility, manufacturers consistently tell us about pricing pressures with their businesses.
While some “easing” took place in recent months, raw material prices remain elevated. The nearly 9 percent increase in producer prices for manufacturers over the past year is evidence of this, mostly because there are limits to how much businesses are able to pass along these costs, especially in a weak economic environment.
With that said, core PPI inflation for finished goods remains modest for now at 2.5 percent. This is essentially where it has been since the summer. Rising intermediate and crude costs are a potential concern looking ahead, though.
Tomorrow, BLS will release data on consumer prices, which are expected to highlight similar trends.
Chad Moutray is chief economist, National Association of Manufacturers.