The Bureau of Labor Statistics reported that producer prices for finished goods were down 0.7 percent in April, extending the 0.6 percent decline in March. Lower energy prices have helped to reduce pricing pressures over much of the past year, with producer prices up just 0.6 percent from where they were 12 months ago. This year-over-year rate is down from 1.4 percent in January and 2.3 percent as recently as October. To further illustrate how inflationary pressures have eased, the year-over-year rate was 4.2 percent in January 2012, with a recent peak of 7.3 percent in July 2011. (See the attached graphic.)
Behind these figures, there were lower food and energy costs for the month. Energy costs were down 2.5 percent in April, building on the 3.4 percent decrease in March. The average price of West Texas intermediate crude oil was $92.02 per barrel in April, down from $95.31 in February and $92.94 in March. This helped to reduce energy costs at both the finished and intermediate goods levels. Meanwhile, food prices were off 0.8 percent, offsetting the increase of the same amount the month before. Reduced meat and vegetable prices were largely responsible for this decrease.
Core producer prices, which exclude food and energy costs, at the finished goods level rose a modest 0.1 percent for the month of April and were up 1.7 percent year-over-year. This number is important, as it indicates that inflationary pressures remain below the Federal Reserve Board’s stated target of 2 percent or less. This frees the Federal Open Market Committee to pursue “highly accommodative” policies to attempt to stimulate economic growth, such as it reiterated at the last meeting.
For manufacturers, the reduction in pricing pressures has been extremely helpful. Raw material costs for the sector fell 0.2 percent in April, and year-over-year, producer prices were down 0.3 percent. The largest decline was in the petroleum and coal products sector, down 1.7 percent for the month and 9.3 percent on an annual basis.
This is not to suggest that rising costs are not still an issue, as they are for some segments of the industry. On a year-over-year basis, the following sectors have seen the fastest growth: wood products (up 10.6 percent), nonmetallic mineral products (up 3.2 percent), food (up 2.5 percent), and beverage and tobacco (up 2.4 percent) manufacturing. At the opposite end of the spectrum, primary metals manufacturers have seen their input costs fall 6.0 percent over the past 12 months.
Chad Moutray is chief economist, National Association of Manufacturers.