October 2014 Producer Price Index

Wholesale prices reversed course in October according to the Bureau of Labor Statistics’ Producer Price Index.  After deflating 0.1 percent in September, this measure of inflation rose 0.2 percent in the following period.  Despite the monthly pickup in prices, the year-over-year tally dropped to 1.7 percent from 1.8 percent a month earlier.

Increasing service costs led the headline figure higher.   Costs increased within both stages of service.   Jumping 0.5 percent, the service index for final demand was heavily influenced by an uptick in margins received by retailers and wholesalers.  Costs associated with intermediate services inched up 0.1 percent; widening sales margins, up 0.8 percent, were the primary cause of the price increase within this earlier stage of services too.  Despite the monthly increase in price pressure, the year-over-year change for services is the lowest since February of this year.

Unlike service costs, prices for final demand wholesale goods dropped in the period.  The index for final demand goods fell 0.4 percent in October.  Food was 1.0 percent higher in the period.  However, energy prices plunged 3.0 percent.  Excluding the volatile food and energy components, the core goods measure edged down 0.1 percent.  Earlier stages of goods do not indicate higher prices are in the near future.  Processed goods for intermediate demand fell 0.9 percent and unprocessed goods dove 2.4 percent.  On a year-over-year basis, prices decelerated for processed goods to 0.4 percent from September’s 1.3 percent uptick, and unprocessed goods’ deflation increased to 1.9 percent after being 0.2 percent lower a month earlier.

In all, this PPI report is a mixed bag.  Services are a large part of America’s output, so the uptick in their costs cannot be ignored.  However, this is only one month’s worth of data, and the year-over-year price trend for all final demand is still decelerating.  While we take note of the uptick in services, Atlas sees the bigger picture still pointing to mild inflation.              (by C. Cox)