After major up-revisions, "Core" and "Core Services" PPI inflation is not at all favourable. The whole scenario has changed for the worse

Six-month core PPI: +3.4%. Six-month services PPI: +3.7%. Over the years, both have accelerated. But electricity prices have come down.

By Wolf Richter for WOLF STREET.

The producer price index inched up just 0.05% from August to September due to a plunge in fuel prices – leaving it “unchanged” – and that was the material for today's (AI-generated?) headlines. But outside of strength, inflation at the producer level was far from benign, as several of the previous month-on-month changes were revised significantly today. The six-month average, which includes corrections, and year-on-year increases, shows that the whole situation has changed for the worse.

“Core” PPI August to September rose 1.9% annually (not 0.16% annualized), seasonally adjusted, according to data from the Bureau of Labor Statistics today. But the previous few months have been quite refined. These month-to-month squiggles are indicated in blue.

Hence 6 months core PPI – which includes month-on-month squiggle corrections and irons – accelerated to +3.4% in September. In terms of up-revisions: August, revised as of today, rose 3.2%, up from 2.8% a month ago. Notice how the 6-month average rose in 2024 after behaving well for most of 2023 near 2% (red).

Year after year, the original PPI rose 2.8%, the second month in a row of acceleration, showing a significant up-trend in 2024. In terms of up-revisions: August, revised as of today, rose from a one-month reading of 2.6% to 2.4% previously.

PPI tracks the price inflation of the goods and services that companies buy and the cost increases they ultimately try to pass on to their customers.

After major up-revisions, “Core” and “Core Services” PPI inflation is not at all favourable. The whole scenario has changed for the worse

Service PPI August to September rose 2.0% annually, and some prior months were revised significantly (blue in the chart below).

So the 6-month average rose 3.7% (yearly) in September. In terms of up-revisions: August, revised as of today, rose 3.6%, from August's reading of 3.0% a month ago!

It is the major revisions in PPI services that have driven revisions to the original PPI. And there is nothing benign about the service PPI trend.

Over the years, services PPI Accelerated to 3.1% in September. In terms of revisions: August was revised up to 2.9% growth, from the 2.6% growth reported a month ago.

“Finished Core Product” PPI August to September rose 2.6% annually. The 6-month average accelerated to 2.3%, but remained within that range for three months. And the corrections were negligible.

At the core product level, producer price inflation appears to be at the upper end of the pre-pandemic range at this time.

As we have also seen in the Consumer Price Index, there has been no major inflationary pressure in core products in over a year. Inflation in services has been very sticky. And core goods have been a big factor in keeping down overall inflation.

PPI for “finished core goods” includes manufactured goods that companies buy but excludes food and energy products.

Over the years, the finished core product is PPI Accelerated to 2.4% in September, the highest since December 2023. Here too, we see that core commodity inflation is at the upper end of the pre-pandemic range.

Overall PPI As for final demand, due to a dip in energy prices, it rose 0.6% year-on-year in August to September (+0.05% year-on-year).

But the 6-month average rose 2.3% due to a large upward revision in previous months, even as energy prices eased.

In terms of revisions: August was revised up to a 2.2% increase, from a reported 1.9% increase a month ago.

Here too, and despite the plunge in energy prices, we see overall PPI starting to trend higher in 2023.

Year-on-year, overall PPI rose 1.8%. August growth was revised up to 1.9%, from the 1.8% increase reported a month ago.

Clearly, the massive plunge in electricity prices that began in mid-2022 will end when energy prices bottom out somewhere. Electricity prices cannot remain submerged forever. But this plunge in power prices has papered over very sticky and still-vibrant inflationary pressures in services, which is why we look beyond energy to prices.