Producer Prices Index (PPI) higher than expected. Look for increasing inflation in the medium term

Overall finished goods PPI prices were slightly higher than expectations, rising 0.4% in August. PPI food prices slipped 0.3%, while energy prices increased 2.2% in the month.
Core finished goods PPI prices were in line with forecasts, rising 0.1% in August. This resulted in the year-over-year core PPI inflation rate slowing to 1.3% in August from 1.5% in July (the core PPI has increased a faster 1.9% at an annual rate over the last three months).


While finished goods inflation slowed in August, there is no evidence of deflationary pressures in this report, especially with pipeline prices showing rapid gains over the last year (for example, core crude prices have risen more than 21% over the last 12 months). Given the sharp pickup in food commodity prices and farm prices received, we expect that PPI food will add significantly to finished goods inflation over the balance of this year.


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