The Producer Price Index (PPI) for final demand rose .2% in August vs an Econoday consensus expectation of 0.3%. Excluding food and energy, the PPI rose 0.1% vs an expectation of 0.2%.
Neither Hurricane Harvey nor Irma impacted the report. Next month, they will.
In a report not affected by Hurricane Harvey, producer prices once again couldn’t live up to expectations, edging 0.2 percent higher in August vs Econoday’s consensus for 0.3 percent. Also 1 tenth below expectations is the core (less food & energy) which could manage only a 0.1 percent gain. This is the third month in a row that the core has missed the consensus.
At 0.2 percent is the less food, energy & trade services reading where the gain relative to the core reflects yet another weak showing for trade services which is a closely watched component that hasn’t posted a gain since May. Service industries showing special weakness in August are hotel services and securities/investment services.
The lack of pressure comes despite a 3.3 percent monthly jump in energy costs that however does not reflect Hurricane Harvey as the shock, as explained by the Bureau of Labor Statistics, hit too late in the month to be picked up in the report. Even before Harvey, wholesale gasoline prices surged 9.5 percent in the month. Offsetting the rise in energy is a drop in food, down 1.3 percent and reflecting wide declines through components.
Though energy costs are a major wildcard right now, this report speaks to what is a persistent lack of price pressures in the economy, in this case at the base of the economy. Today’s report won’t be firming up confidence for tomorrow’s consumer price report where a rebound, like that expected for this report, is the call.
Goods Up 0.5%, Services Up 0.1%
The BLS breaks things down a bit finer.
- In August, the Producer Price Index for final demand advanced 0.2 percent, as the index for final demand goods climbed 0.5 percent and prices for final demand services inched up 0.1 percent.
- The final demand index increased 2.4 percent for the 12 months ended in August.
- Three-quarters of the August increase in final demand prices is attributable to the index for final demand goods.
- Prices for final demand goods advanced 0.5 percent in August, the largest rise since moving up 0.5 percent in April. Most of the August increase can be traced to the index for final demand energy, which climbed 3.3 percent.
- The index for final demand services edged up 0.1 percent in August after falling 0.2 percent in July. Over 70 percent of the increase can be traced to a 0.1-percent advance in the index for final demand services less trade, transportation, and warehousing.
The amazing thing about this report is the Econoday parrot did not moan about prices not rising enough.
Mike “Mish” Shedlock
Too bad they don’t live in the real world. They need to include the downsizing of products selling for inflated prices……
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+1
Shrinking sizes, watered down products… bureaucrats only make “hedonic” adjustments that reduce prices. They ignore quality / size changes that increase the price.
And the significantly increased wait time to get any service? Lets not talk about that because it makes the Fed and all deflationistas look stupid
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“Today’s report won’t be firming up confidence for tomorrow’s consumer price report where a rebound, like that expected for this report, is the call.”
…
Promotional pricing (the Amazon Effect) still ruling retail sales. NRF says record amount of retail product hitting the ports H2. Don’t see PP going away anytime soon.
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What about Amazon’s “dynamic pricing”, which many FL consumers are calling price gouging?
What about Amazon’s complete failure to deliver products to FL residents before the storm — products that were ordered by Prime members (2 day shipping) on Mon or Tues but did not arrive before the Sat night / Sun morning storm?
All the people who bought at Target and Walmart got their emergency supplies before the storm
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What about it?
Nothingburger re CPI
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The “amazon effect” is a media myth
Amazon is losing money, and other stores were already competitive. Whole Paycheck was not competitive and still isn’t
What we are seeing is sellers that are cutting sizes and cutting quality — neither of which is deflationary. Service sector INFLATION is alive and well
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“The “amazon effect” is a media myth”
…
Hardly. Companies are cutting prices in response. Dick’s and Target two recent examples of companies stepping up to the plate.
“Service sector INFLATION is alive and well”
My point was retail sales.
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And Amazon got caught red-handed manipulating the reviews for Hillary’s book of excuses. Amazon deleted THOUSANDS of bad reviews — even though the liberal paper of record NY Times even said the book sucked.
Amazon is a media darling — much like Hilary. Outside the media, not so popular
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significant deflation
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If only the rest of the drug industry would be similarly deregulated, perhaps people could afford other treatments than self medicating with the above……
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All kidding aside. The pharmaceutical industry is one of the saddest examples of big business comprising government. One of the biggest problems in the U.S.
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It’s not regulation. It’s patents. The drug companies can charge what they want because they’re the sole source. And they have to have some patent protection because it does cost a lot to get a drug to market, but their prices are certainly way above reasonable.
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Regulations is what allows interpretations of patents broad enough to allow the gouging that is going on today.
And inherent “cost to bring drugs to market,” is all of the cost of mixing up some snakeoil and setting up a stand. Any cost on top of that is, again, due to regulations.
Lunacy level patent protections for even the tiniest nothing, combined with a 100,000+ strong bureaucracy mandating billion dollar trials before a “drug” can be marketed, is just one way to make better drugs available. It’s by no means the only way.
What the current process gains from the ability of gigantic pharmas, and massively capitalized, well connected startups, to pull off the occasional moonshot, it loses from killing off anything resembling more granular development paths. As in, many more people making tiny changes, little experiments, that over time leads to improvements. Which is now either straight up banned, or made cost prohibitive due to patent enforcement or regulations.
In virtually any other engineering field, the “baby steps” approach of continuous evolution, have long since replaced the megaoproject/moonshot variety. And for good reason, since it leads to overall better outcomes. Less spectacular and individually impressive ones, perhaps, but added up, more genuinely significant ones. Think millions of suburban homes vs The Kremlin. Or a billion little scooters, transforming the lives of everyone, vs the moon landing.
But being regulated, the health care/pharma sector, still operates the way industry did in the Soviet Union in the 50s. Massive projects planned and decided on by a few well connecteds in industry and government. Any competing methodology banned. All for “the good of the people” of course…..
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One thing that has always puzzled me about hurricanes is I get that there’s an economic boost because a lot of insurance money is now going into the economy, but shouldn’t there be a corresponding drop in the securities market since the insurance money is liquidated from what I assume are investments made by the insurance companies?
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I significantly pressure prices down at every opportunity. I know the folks in Houston and Florida are doing the same.
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Those who live by the words of the Bureau of Labor Statistics (BLS),
die by the words of the Bureau of Labor Statistics (BLS) .
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