Lower Petroleum Prices Help to Ease Producer Prices in March

By April 12, 2013General

The Bureau of Labor Statistics reported that producer prices for finished goods fell 0.6 percent in March, the first decline so far of 2013. Lower energy prices help to explain much of March’s decline, with the price of finished energy goods down 3.4 percent. This was mostly a swing of the pendulum in petroleum markets, as the cost of finished energy goods had risen 3.0 percent in February. The decrease in energy prices flowed to the intermediate (down 4.7 percent) and crude (down 8.5 percent) levels, which should help ease manufacturers’ pricing pressures moving forward, as well.

In contrast to lower energy prices, the cost of food was higher in March, up 0.8 percent. Specifically, prices for fresh fruits, vegetables, and eggs rose at the finished goods level, and at the intermediate level, the cost increases stemmed from higher feed prices.

Excluding food and energy costs, core inflation in March rose by 0.2 percent, and the annual rate is currently 1.7 percent. That is below the Federal Reserve Board’s stated target of 2.0 percent or less, suggesting that at least for now, inflationary pressures have been minimized. This has freed the Fed to pursue expansionary policies to attempt to stimulate economic growth, such as it reiterated at the last Federal Open Market Committee meeting.

For manufacturers, this easing has been helpful in reducing their own pricing pressures. Raw material costs in the sector fell 0.3 percent in March, and year-over-year, producer prices were essentially flat, up just 0.1 percent. Not surprisingly, the largest decline in producer prices in the manufacturing sector for the month occurred in the petroleum and coal products sector, down 2.4 percent. Meanwhile, sectors with the largest input price gains for the month were wood products (up 1.8 percent), textile product mills (up 1.2 percent), leather and allied products (up 0.9 percent), and plastics and rubber products (up 0.8 percent).

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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