Econoday Report: Producer Price Index 16, 2006

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Producer Price Index

Definition
The Producer Price Index (PPI) is a measure of the average price level for a fixed basket of capital and consumer goods received by producers. Why Investors Care

Released on 5/16/06 For Apr 2006

PPI, M/M change
Actual	0.9%
Consensus	0.8%
Consensus Range	0.5% to 1.2%
Previous	0.5 %

PPI less food & energy, M/M change
Actual	0.1%
Consensus	0.2%
Consensus Range	0.1% to 0.4%
Previous	0.1 %

Highlights
Producer prices shot up 0.9% in April but excluding energy prices inched only 0.1% higher. Gasoline added on to a 9.1% spike in March with a 12.3% spike in April, no surprise following last week's jump in imported energy prices. Though the big overall gain is scary, the report itself is no surprise and showed a tame enough 0.3% rise excluding gasoline. Bonds firmed and the dollar slip in initial reaction to the data, which were released along with a soft housing starts report.

The core rate, which excludes both energy as well as food, also inched only 0.1% higher. The year-on-year core rate, a closely watched barometer for underlying inflation, came in at a very tame 1.5%. In contrast, the overall year-on-year rate was 4.0%. If oil costs extend their rise, as they apparently have this month, sooner or later the core rate will feel pressure as will the core rate for consumer prices.

There was in fact some indication of pressure at lower levels of production. Overall prices at the crude level of production rose 1.2% in April while prices at the intermediate level rose 0.9%. Crude prices excluding energy and food showed special pressure tied to metals prices (a reminder of what's going on right now with gold and other metals). But finished prices for most goods remained tame, with autos, tobacco, and computers showing declines. Prices for light trucks were unchanged.

How long will energy inflation go on and how long will it remain contained? These are key questions for Federal Reserve policy makers who, along with the financial markets, will be watching tomorrow's CPI carefully.

Market Consensus Before Announcement
The producer price index increased 0.5 percent in March with energy prices rising 1.8 percent and food prices increasing 0.5 percent during the month. Excluding energy and food, the PPI rose 0.1 in March. The spike in the import price index suggests a spurt in energy prices in the April PPI.

PPI Consensus Forecast for Apr 06: 0.8 percent
Range: 0.5 to 1.2 percent

PPI ex food & energy Consensus Forecast for Apr 06: 0.2 percent
Range: 0.1 to 0.4 percent

Trends

It is always a good idea to look at more than a few months of data to get a sense of changes in established trends. Monthly changes in the PPI are mainly volatile because of sharp fluctuations in food and energy prices. The core PPI eliminates the sharper fluctuations.

Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation. Even with the smoother trend, note that the core PPI does not fluctuate as much as the total PPI.

Data Source: Haver Analytics

2006 Release Schedule

Released On: 1/13 2/17 3/21 4/18 5/16 6/13 7/18 8/15 9/19 10/17 11/14 12/19

Released For: Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov