The producer price index for final demand rose 0.2% in October, after adjusting seasonally, according to a report by the US Bureau of Labor Statistics today. Final demand prices rose 0.1% in September and 0.2% in August. On an unadjusted basis, the final demand index rose 2.4% during the twelve months ended October.
In October, most of the rise in final order prices can be attributed to a 0.3% rise in the final order services index. Prices of ordered goods rose slightly by 0.1%.
The final demand index excluding food, energy and commercial services rose 0.3% in October after rising 0.1% in September. During the twelve months ending in October, final demand prices excluding food, energy and commercial services increased by 3.5 percent.%.
Final Order Services: The Final Order Services index rose 0.3% in October after rising 0.2% in September. More than three-quarters of the broad-based progress in October was attributed to prices of end-demand services, minus trade, transport and storage, which rose 0.3%. The indices of transportation and warehousing services for final demand and trade services for final demand increased by 0.5% and 0.1% respectively.
Portfolio management prices, which increased by 3.6%. Wholesale machinery and vehicle trade; aircraft passenger services; retail of computers, software and supplies; outpatient care (partially); and cable and satellite subscriber services also rose. By contrast, retail margins for clothing, footwear and accessories fell by 3.7 per cent. Brokerage prices in securities, trading, investment advisory, related services and freight transport by trucking have also fallen.
Final Order Goods: The final demand goods index rose 0.1 percent in October after two consecutive declines. The progress can be attributed to a 0.3 per cent rise in the prices of final demand commodities excluding food and energy.
Comparison between PPI and CPI: how do they measure inflation differently?
The monthly Producer Price Index (PPI) and the Consumer Price Index (CPI) are both important economic indicators used to measure inflation, but they focus on different stages of the economic process and have distinctive characteristics. Here is a breakdown of the main differences between the two:
- Definition and purpose
– Producer Price Index:
– Measures the average change in the selling prices that domestic producers receive for their production over time.
– Reflects price changes from the perspective of the seller(s) and covers wholesale prices.
– Consumer Price Index:
It measures the average change in prices paid by consumers for a basket of goods and services over time.
– Reflects price changes from the perspective of the buyer(s) and covers retail prices.
- Focus and scope
– Producer Price Index:
– Focuses on goods and services at the wholesale level before they reach consumers.
– Captures changes in the prices of raw materials, intermediate goods and finished goods.
– Consumer Price Index:
It focuses on the prices consumers pay for goods and services, including food, housing, clothing and transportation.
– Measures the cost of a fixed basket of goods and services that represent typical consumption patterns.
- Inflation indicators
– Producer Price Index:
– It is often considered a leading indicator of inflation because changes in producer prices can affect consumer prices.
– A higher PPI may indicate possible future increases in the CPI as production costs shift to consumers.
– Consumer Price Index:
– It is commonly used to measure inflation and the cost of living for consumers.
- Use in economic policy
– Producer Price Index:
– Used by companies and policymakers to measure price trends at the wholesale level.
– Useful in predicting inflation trends before they affect consumer prices.
Factors affecting monthly US producer price index changes
Changes in the PPI can be influenced by various factors that affect production costs and the prices that producers receive for their goods and services. Here are some of the key factors influencing PPI changes:
- Dynamics of supply and demand
Supply chain disruptions: Any supply chain disruptions, such as natural disasters, political instability or pandemics, can lead to shortages of raw materials, leading to higher production costs.
Consumer demand: Increased consumer demand for certain products can lead to higher prices, as producers may raise their prices in response to supply shortages.
- Input costs
– Raw material prices: Fluctuations in the prices of raw materials (e.g. metals, energy, agricultural products) directly affect the cost of production. Higher raw material costs usually increase the PPI.
Labor costs: Changes in wages, benefits and availability of labor can affect production costs. Rising labour costs can push producers to raise their prices.
- Energy prices
Fuel and energy costs: Since energy is an important input for many industries, changes in oil, gas and electricity prices can have a significant impact on the overall PPI.
- Monetary policy
Interest rates: The Fed’s monetary policy, including changes in interest rates, can affect companies’ borrowing costs. Higher interest rates may increase production costs, and therefore the producer price index.
Inflation expectations: If companies expect inflation to rise, prices may proactively increase, affecting the PPI.
- Economic conditions
Economic growth: A strong economy usually leads to increased production and demand, which can push prices up.
Global economic trends: Changes in the global economy, such as international trade agreements, tariffs and global demand, can affect production costs and prices.
