Raw Material Prices Continue to Ease for Manufacturers

By August 14, 2012Economy

The Bureau of Labor Statistics reported that producer prices for finished goods rose 0.3 percent in July. This suggests a slight pickup in prices from the 0.1 percent gain of June. With that said, energy costs at the finished and intermediate levels continued to move lower. The main driver of higher producer prices this month was food, which rose 0.5 percent for finished goods this month. The price of meat – particularly beef and pork – was up significantly. 

Core prices – which exclude food and energy costs – rose 0.4 percent in June, and they have risen 2.6 percent over the course of the past year. This year-over-year figure suggests that overall inflationary pressures have eased appreciably since earlier in the year.

One of the primary forces behind this easing has been lower petroleum costs. For manufacturers, this has coincided with reduced raw material prices over the past few months. In July, producer prices for manufacturers dropped 0.6 percent, the fourth straight month of declines. Since July 2011, raw material costs have fallen 0.4 percent.

As noted, the leader was the petroleum and coal products manufacturing sector, with 4.1 percent lower costs last month and 9.9 percent lower year-over year. Other sectors with declining costs included primary metals (down 1.8 percent) and textile mills (down 0.8 percent). At the same, beverage and tobacco (up 1 percent), textile product mills (up 0.6 percent), food (up 0.5 percent), and nonmetallic mineral product (up 0.5 percent) manufacturers had higher raw material costs.

Costs for intermediate goods were 0.9 percent lower; whereas, crude materials were 1.8 percent higher. Crude food and energy costs were higher, which should translate into higher overall costs in the coming months as they move through the production process toward finished goods.

Overall, while producer prices were higher in July, these gains were mostly isolated in specific sectors. The larger trend of easing continues to be the case, especially for manufacturers.

Chad Moutray is chief economist, National Association of Manufacturers.

Chad Moutray

Chad Moutray

Chad Moutray is chief economist for the National Association of Manufacturers (NAM), where he serves as the NAM’s economic forecaster and spokesperson on economic issues. He frequently comments on current economic conditions for manufacturers through professional presentations and media interviews. He has appeared on Bloomberg, CNBC, C-SPAN, Fox Business and Fox News, among other news outlets.
Chad Moutray

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