Merk Investments: Producer Price Index: August 2008
Producer prices in August benefited from the sharp decline in oil and commodity prices during the reporting period. Headline costs declined -0/9% for the month and the core saw a 0.2% increase. On an annual basis the headline was up 9.6% an the core 3.6%, both below consensus. Ex-food prices for producer declined -1.2% and ex-energy they rose 0.2% for the month. The -4.6% decline in energy and the -1.2% fall in the cost of consumer good led the way. The cost of capital equipment advanced 0.1% and foodstuffs rose 0.3%.
The cost of total intermediates fell -1.0% for the month, but the core ex-food and energy component increased 1.7%. On an annual basis total intermediates are up 16.7% and core costs have climbed 12.5%. Ex-energy prices in the pipeline advanced 1.5% m/m and 13.1% y/y. Total crude costs fell -11.9% and the core ex-energy and good component declined -1.9%.
Of concern over the past few months has been pricing pressure inside the pipeline. The fall in headline prices provided the first real glimpse of hope on the inflation front in some time. In particular, the solid decline inside the total intermediate goods and the fall across the board in crude goods after an extended period of outsized gains. While, it is uncertain at this time that those savings will be passed along downstream by firms still grappling with razor thin profit margins, should this develop into a trend it should provide some material comfort to a Fed still concerned over the upside risk to inflation.
Joseph Brusuelas
Merk Investments
Chief Economist/VP Global Strategy
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