Pricing Pressures Continue to Ease

By December 13, 2012Economy

The Bureau of Labor Statistics reported that producer prices for finished goods dropped 0.8 percent in November, adding to the 0.2 percent decline seen in October. The principal driver of the lower figure in November was the 4.6 percent decline in energy costs. Specifically, the price of gasoline fell over 10 percent for the month, helping to ease pricing pressures for businesses.

In contrast, food costs were up 1.3 percent, rising for the sixth consecutive month. Higher beef prices (up 8.2 percent) were largely responsible for the increase in finished food goods prices.

The bottom line is that the year-to-date change in producer prices for finished goods has fallen to 1.4 percent, from 2.3 percent in October and higher figures earlier in the year. With lower energy costs especially, we have seen these year-over-year rates decline from 4.2 percent in January to as low as 0.5 percent in July. Meanwhile, core producer prices – which exclude food and energy – are currently up 2.2 percent over the past 12 months. This also reflects significant easing, as core rates began the year at a 3.1 percent pace.

Manufacturers have benefits from a slower pace of growth for raw material prices. Producer prices were down 1.2 percent for the manufacturing sector in November, and over the past year, these costs have risen just 1.0 percent. The largest decline in costs was seen in the petroleum and coal products sector, which was down 7.8 percent. In contrast, the paper manufacturing sector had the largest increase for the month, with input costs up 0.9 percent.

Overall, these figures show that producer prices have slowed considerably over the past few months. As noted in yesterday’s Federal Open Market Committee statement, the Federal Reserve is currently less worried about inflationary pressures than about downward risks to economic growth and employment. That is why it continues to pursue extremely accommodative policies to attempt to stimulate growth. With prices in control for now, the Fed feels that it has the ability to focus on its employment targets, at least for now.

The Bureau of Labor Statistics will release consumer price index data tomorrow, which are largely expected to mirror those at the producer level.

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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