Producer Prices Rise Solidly

The headlines are promising and year-on-year rates are mostly going in the right direction, but some of the details of the September producer price report are on the soft side. Producer prices rose a solid 0.3 percent to hit Econoday's high-end forecast. Prices rose 0.2 percent when excluding food & energy and rose 0.3 percent when excluding food & energy and also services, which is where the weakness lies.

Goods rose 0.7 percent reflecting a monthly swing higher in energy and also a noticeable 0.6 percent rise in consumer foods that reflect an 11 percent jump in vegetables. But there's very little pressure in service costs at the wholesale level, up only 0.1 percent with the closely watched trade services subcomponent down 0.4 percent. The year-on-year rate for this latter reading is unchanged and actually down from plus 0.6 percent in the prior month.

But other year-on-year rates are constructive, moving 7 tenths higher overall to plus 0.7 percent. Yet the weakness in service prices, which have had a hard time moving higher all year, points to a stubbornly slow pace for the Federal Reserve's efforts to stimulate inflation toward their 2 percent goal.

Recent History Of This Indicator:
Producer prices did show pressure in May and June but then fell sharply in July and came in flat in August, the latter at no change for the headline and up only 0.1 percent less food & energy. Goods prices have been in outright contraction and offset only in part by marginal pressure for service prices. Forecasters see September's headline coming in at plus 0.2 percent with the core at only plus 0.1 percent.