Higher Food and Energy Costs Push Producer Prices Higher in August

By September 13, 2012Economy

The Bureau of Labor Statistics reported that producer prices for finished goods rose 1.7 percent in August, its fastest rate since June 2009. Higher food and energy costs lifted the producer price index (PPI) higher, with food and energy costs up 0.9 percent and 6.4 percent, respectively.

The increase in energy costs was closely associated with a 13.6 percent increase in petroleum prices. Meanwhile, the price of fresh eggs accounted for the bulk of the gain in food costs, up 22.8 percent for the month.

Core prices – which exclude food and energy costs – rose just 0.2 percent in August, suggesting the overall inflationary pressures remain modest. Core inflation is 2.6 percent over the course of the past year, the same pace observed in June and July. Overall, core prices reflect considerable easing from the beginning of the year, when year-over-year rates were 3.1 percent.

Nonetheless, manufacturers have noticed increased energy and raw material prices in the past month. We have seen a pickup in pricing pressures on a number of surveys, including the most recent NAM/IndustryWeek Survey of Manufacturers. It found that nearly 40 percent of manufacturers were concerned about rising prices.

Producer prices for manufacturers increased 1.2 percent in August. This follows four consecutive months of declining raw material costs for the sector. As a result, year-over-year costs for the manufacturing sector are up just 1.4 percent, reflecting the easing that we have seen in the spring and early summer months. Last month, year-over-year price producer costs were negative, suggesting that this month’s increase was the difference for the most part.

Looking specifically at manufacturing costs by sector, the largest gain – not surprisingly – was found in the petroleum and coal products industry, which was up 6.4 percent for the month (but unchanged year-over-year, interestingly enough). Other manufacturing sectors with significant increases were wood products (up 1.4 percent) and food (up 1.2 percent). At the same time, primary metals (down 1.3 percent) and plastics and rubber products (down 0.7 percent) were among those with declining costs. 

Costs for intermediate and crude goods were also higher, up 1.1 percent and 5.8 percent, respectively. In both cases, increased food and energy costs were the main reason.

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) and the Director of the Center for Manufacturing Research for The Manufacturing Institute, 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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