Econoday Report: Producer Price Index September 15, 2009

2009 Economic Calendar

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Producer Price Index

Released on 9/15/2009 8:30:00 AM For August, 2009

	Prior	Consensus	Consensus Range	Actual
PPI - M/M change	-0.9 %	0.8 %	-0.3 % to 2.0 %	1.7 %
PPI -Yr/Yr change	-6.4 %			-4.3 %
PPI less food & energy - M/M change	-0.1 %	0.1 %	-0.1 % to 0.3 %	0.2 %
PPI less food & energy - Yr/Yr change	2.6 %			2.3 %

Highlights
Producer price inflation in August spiked largely on energy while the core firmed moderately on higher motor vehicle prices. The overall PPI rebounded 1.7 percent after dropping 0.9 percent in July. The boost in August came in well above the consensus forecast for a 0.8 percent jump in the headline PPI. The jump in the latest month was led by an 8.0 percent surge in energy costs with food price inflation also strong with a 0.4 percent boost. However, the core rate was considerably tamer, rising 0.2 percent, following a 0.1 percent decline in July. The consensus had expected a 0.1 percent increase in the core for August.

The August spike in energy prices was led by gasoline which surged a monthly 23.0 percent after a 10.2 percent decline in July.

The core rate rebounded largely on a 0.7 percent gain in passenger car prices and a 0.8 percent increase for light trucks.

For the overall PPI, the year-on-year rate increased to minus 4.3 percent from minus 6.4 percent in July (seasonally adjusted). The core rate year-ago pace eased to up 2.3 percent from up 2.6 percent the prior month. On a not seasonally adjusted basis, the year-ago decline for the headline PPI was 4.3 percent while the core was up 2.3 percent.

Currently, inflation at the producer level is mainly for food and energy. Motor vehicle prices were artificially high as government credits helped producers raise revenues received (the basis for the PPI) while lowering costs for consumers. Still, the rise in food and energy costs should be disconcerting to fixed income markets as they can end up causing overall inflation expectations to rise. Today's report should firm interest rates in concert with strong news on Empire State manufacturing and retail sales.

Market Consensus Before Announcement
The producer price index in July fell sharply on both declines in food and energy, dropping 0.9 percent after spiking 1.8 percent in June. Meanwhile the core PPI rate eased sharply to 0.1 percent dip, following a 0.5 percent surge in June. The core rate in July eased largely on a 0.7 percent drop in prices for light trucks. Looking ahead, a seasonally strong gain in oil prices (West Texas Intermediate, up about 14 percent seasonally adjusted) is likely to boost the headline PPI in August.

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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