Higher Food and Energy Costs Push Producer Prices Up Modestly in August

By September 13, 2013Economy

The Bureau of Labor Statistics reported that producer prices for finished goods were up 0.3 percent in July. This compares to being unchanged the month before. This was largely due to higher food and energy costs, which rose 0.6 percent and 0.8 percent for the month, respectively.

The rise in energy prices can best be summed up by looking at the average of West Texas intermediate crude costs, which have increased from $95.77 on average per barrel in June to $104.67 in July to $106.57 in August. On the food side, the largest gains were seen in the cost of fresh and dry vegetables.  Without food and energy costs included, core inflation in August was unchanged.

For manufacturers, raw material costs were up 0.6 percent in August. They had fallen 0.2 percent in July, and over the past 12 months, producer prices in the sector have increased only 0.4 percent. As such, the manufacturing sector has benefited from the recent slowdown in pricing pressures.

With that said, there were pockets in the manufacturing industry that did experience some sizable monthly gains in prices. These manufacturers included the following sectors: wood products (up 5.3 percent), leather and allied products (up 4.8 percent), paper (up 3.3 percent), nonmetallic mineral products (up 3.0 percent), plastics and rubber products (up 2.5 percent), textile product mills (up 2.1 percent), beverages and tobacco (up 2.0 percent), and chemicals (up 1.5 percent). Over the past 12 months, though, most of those sectors have seen small changes in costs, making these gains less dramatic than they might first appear.

Overall inflation continues to be very modest, with producer prices up 1.4 percent on a year-over-year basis. This is down from the 2.5 percent annual pace observed in June. When you exclude food and energy costs, the annual rate of core inflation was just 1.2 percent in August, down from 1.6 percent in June.

The key takeaway is that pricing pressures remain below the two percent threshold set by the Federal Reserve. With the Federal Open Market Committee meeting on September 17-18 next week, policymakers will continued to be encouraged that inflation remains in-check. This will free them up to continue to pursue expansionary monetary policies, even if they begin to slow their asset purchases somewhat.

Chad Moutray is the 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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