Energy Prices Account for Nearly 40% of PPI Increase

Last Updated: Thursday, October 14, 2021 9:43 AM | Neal Farmer

The Producer Price Index (PPI) rose just slightly under expectations with a 0.5% increase in September compared to estimates for a 0.6% jump. The 0.5% rise comes just a day after the Consumer Price Index (CPI) showed a 0.4% increase last month.

Energy and Food Prices Drive Index Higher

Many economists pay closer attention to the changes in core PPI as the measurement excludes energy and food prices that tend to be less stable than the rest of the economy. Interestingly, core PPI and core CPI rose just 0.2% for each in September compared to the overall 0.5% and 0.4% rise respectively.

The sizable difference is primarily due to the 1.3% jump in prices for final demand goods that accounts for roughly 80% of the overall increase last month. Meanwhile the core PPI was pulled back largely because of the 4.0% decrease in transportation and warehousing.

That 1.3% jump in final demand goods is the largest since May and is most attributable to the 2.8% spike in prices for final demand energy. That spike in energy accounts for 40% of the overall index alone.

Slow Decline

PPI numbers are slowly trending lower over recent months albeit at a slower rate than many investors were expecting and hoping for. The 0.5% increase comes after a 0.7% rise in August and 1.0% growth in July.

However, the unadjusted 12-month change in final demand prices shows a 8.6% rise since September 2020. That one year increase is the highest reported by the index since 12-month data was first calculated in November 2010. Meanwhile, the index excluding foods, energy, and trade services rose “just” 5.9%.

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