Econoday Report: Producer Price Index January 15, 2009

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Producer Price Index

Released on 1/15/2009 8:30:00 AM For December, 2008

	Prior	Consensus	Consensus Range	Actual
PPI - M/M change	-2.2 %	-2.0 %	-2.9 % to -0.7 %	-1.9 %
PPI -Yr/Yr change	0.2 %			-1.2 %
PPI less food & energy - M/M change	0.1 %	0.1 %	-0.3 % to 0.4 %	0.2 %
PPI less food & energy - Yr/Yr change	4.2 %			4.3 %

Highlights
Producer price inflation in December continued its streak of energy induced monthly declines. The overall PPI fell 1.9 percent, following a 2.2 percent drop in November. The December decrease was close to the market forecast for a 2.0 percent fall in the headline PPI and was the fifth consecutive monthly decline. The core PPI rate rose 0.2 percent after edging up 0.1 percent in November. The market had projected a 0.1 percent rise for December.

As in recent months, energy led the headline PPI down. For the latest month energy dropped 9.3 percent, led by a 25.7 percent plunge in gasoline prices. Even food was weak with a 1.5 percent decline.

The core rate was moderate despite a 1.2 percent rebound in passenger car prices and a 0.8 percent boost in light truck prices. Within the core, weakness was largely in capital equipment outside of light trucks.

For the overall PPI, the year-on-year rate fell to minus 1.2 percent in December from up 0.2 percent the month before (seasonally adjusted). The core rate firmed to up 4.3 percent from up 4.2 percent in November.

Overall, prices at the manufacturers’ level are quite subdued. The numbers are close to expectations and are likely to have little impact on markets.

Market Consensus Before Announcement
The producer price index continued to soften in November, largely on lower energy cost as the overall PPI dropped 2.2 percent, following a 2.8 percent fall in October. The core PPI rate eased to a 0.1 percent gain after jumping 0.4 percent in October. Dragging the headline number down was a monthly 11.2 percent drop in energy costs. Within energy, gasoline plummeted 25.7 percent after a 24.9 percent fall in October.

PPI Consensus Forecast for December 08, m/m: -2.0 percent
Range: -2.9 to -0.7 percent

PPI ex food & energy Consensus Forecast for December 08, m/m: +0.1 percent
Range: -0.3 to +0.4 percent

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

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.

Data Source: Haver Analytics

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

2009 Release Schedule

Released On: 1/15 2/19 3/17 4/14 5/14 6/16 7/14 8/18 9/15 10/20 11/17 12/15

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

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