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October PPI fell a record 2.8%, much more than expected, after an unrevised 0.4% fall in September. Core PPI, however, increased 0.4% for the second month in row, and came in higher than consensus estimates. Y-o-Y Headline PPI rose 5.2% and Core PPI jumped 4.4%, the biggest increase in almost two decades.

Energy prices tumbled 12.8% in October (biggest drop since Jul-86) with liquified petroleum gas plunging 27.6 (biggest decline since Sep-74) and gasoline plummeting a record 24.9%.

Consumer food prices fell 0.2% (the biggest decline in 8 months) with shortening and cooking oils declining 10%, the biggest drop in over 60 years.

The biggest drivers in the core data were tires (up 4%, the largest increase in over 30 years), and light motor trucks (up 2.6%). Passenger car prices, however, fell 1.7%.

• October Headline PPI is expected to fall 1.7% following a 0.4% decline in September
• October Core PPI is expected to gain 0.1% following a 0.4% increase prior

Energy prices are expected to plunge more than 10% following a 2.9% decline in September and a 4.6% decline in August. Lower energy prices are likely to be the largest contributing factor to the expected drop in October headline PPI. Energy prices compromise over 31% of headline PPI. Gasoline prices fell 0.5% in September following a 3.5% decline in August.

Lower food prices also pose downside risks to October PPI. Recent declines in spot food commodity prices have yet to manifest in recent data. Food price gained 0.2% in September following a 0.3% increase in August. Food prices compromise just over 21% of headline PPI.

Core prices are expected to post marginal gains, though upside risks from lingering price offsets remain. Core prices are nonetheless expected to post their slowest rate of increase in over a year. Core Prices rose 0.4% in September following a 0.2% increase in August.

Related data:

• October ISM Manufacturing Prices Paid Index: 37 vs. 53.5 prior
• October ISM-NMI Prices Paid Index: 53.4 vs. 70 prior

• October Headline PPI is expected to fall 1.7% following a 0.4% decline in September
• October Core PPI is expected to gain 0.1% following a 0.4% increase prior

Energy prices are expected to plunge more than 10% following a 2.9% decline in September and a 4.6% decline in August. Lower energy prices are likely to be the largest contributing factor to the expected drop in October headline PPI. Energy prices compromise over 31% of headline PPI. Gasoline prices fell 0.5% in September following a 3.5% decline in August.

Lower food prices also pose downside risks to October PPI. Recent declines in spot food commodity prices have yet to manifest in recent data. Food price gained 0.2% in September following a 0.3% increase in August. Food prices compromise just over 21% of headline PPI.

Core prices are expected to post marginal gains, though upside risks from lingering price offsets remain. Core prices are nonetheless expected to post their slowest rate of increase in over a year. Core Prices rose 0.4% in September following a 0.2% increase in August.

Related data:

• October ISM Manufacturing Prices Paid Index: 37 vs. 53.5 prior
• October ISM-NMI Prices Paid Index: 53.4 vs. 70 prior

The Producer Price Index for finished goods fell 0.4% in September after falling 0.9% in August, that decline was in line with analysts’ expectations. However, the core inflation rate rose 0.4%, about twice what economists had predicted.

Energy prices continued to fall in September, down 2.9%, as heating oil fell 14% and residential natural gas prices fell 8.2%. Gasoline prices edged down 0.5% after falling 3.5% in August. Consumer food prices rose 0.2%, slightly less than in August, despite a 28% increase in vegetable prices, a 12% increase in egg prices and a record high increase in snack chip prices, up 7.5%. Offsetting those increases were declines in most meat prices and prices of dairy product were down 2%.

The core finished goods index rose 0.4%, its largest gain since July. Price of autos and light trucks rose in September, despite weak sales. But price increases for sanitary paper products, up 1.9%, a increase in pharmaceutical prices and increased prices for tobacco products also helped push up the index. Despite relatively weak demand for capital goods, the capital equipment price index rose 0.5% in September. While higher auto and truck prices helped drive that gain, there were also strong price increases for machine tools, material handling equipment and agricultural machinery.

Intermediate goods prices fell 1.2%, its largest decline since the fall of 2006. Intermediate energy goods prices fell 3.8% on declining prices for heating oil, diesel fuel and natural gas. Intermediate food prices also fell as cereal and bakery products and fats and oils registered their largest price declines in over a decade. Intermediate core materials prices fell 0.3% with nonferrous metals prices declining by 11%, the largest price decline in that category in over 25 years. With energy prices weakening along with the economy, prices for basic chemicals and steel mill prices also fell.

Crude goods prices fell 7.9% in September. Crude energy prices fell almost 12% on declining prices for crude oil and natural gas. Basic materials declined 9.4%, a record decline for the index, reflecting a 22% decline in steel scrap prices and a 10% decline in copper ore prices.

Y-on-y the finished goods index was up 8.7% from last year and the core finished goods price index was up 4.0%, its largest 12-month gain in over 15 years.

• September PPI is expected to fall 0.4% following a 0.9% drop in August

• September Core PPI is expected to increase 0.2% following a 0.2% increase in August

• Year-over-year Headline PPI is expected to fall to 8.7% from 9.6% in August

• Year-over-year Core PPI is expected at 3.8% from 3.6% in August

Lower energy prices are once again expected lead headline inflation lower in September, after a 4.6% drop in energy prices helped push headline PPI down 0.9% in August. Energy prices make up roughlt 22% of headline PPI. Food prices, which represent just over 21% of Headline PPI, are also expected to post declines in September and may yield a larger than expected drop in Headline PPI over the reference period.

Core PPI is expected to post a modest increase in September as pipeline inflation is expected to continue to show signs of easing; though there remains upside risks from unexpected price offsets, as producers may have resisted increasing prices until Headline PPI showed signs of waning.

• The September ISM Manufacturing Prices Paid Index fell to 53.5 from 77 prior

• The September Empire Fed Prices Paid Index fell to 44.8 vs. 65.2 prior

• The September Chicago PMI Prices Paid Index was 80.7 vs. 80.6 prior

PPI fell 0.9% in August, more than the 0.5% expected and significantly lower than the 1.2% reading in July. It was the first decline in the index since December and the biggest fall since Oct-06.

Core PPI rose 0.2%, in line with expectations and lower than the 0.7% reported in July.

Y-o-Y, wholesale inflation rose 9.6% — less than the 10.2% estimate. Y-o-Y Core PPI jumped 3.6%, slightly less than expected but still the highest in over 17 years, and well outside the FED’s comfort zone.

The drop in headline PPI came as finished energy goods declined 4.6%, the biggest drop in 2 years. Liquefied petroleum gas plunged 19.5% (biggest drop since ‘01) and home heating oil tumbled 13.6%.

Finished consumer foods showed a 0.3% increase with pork prices jumping 11.2%, eggs rising 9.3%, but fresh vegetables ex-potatoes falling 13.2%.

The core number rose only slightly as prices for civilian aircraft rose 0.7%, outweighing the declines in light motor trucks and passenger cars.

The PPI for intermediate goods fell 1% in August, driven down by the biggest drop in intermediate energy goods since Apr-03. Crude goods prices dropped nearly 12%, also the most since Apr-03.

August Headline PPI is expected to decrease 0.5% m-o-m following a 1.2% rise prior. Headline CPI y-o-y is expected to rise 10.2% after the 9.8% jump last month, which was largest increase since 1981.

August Core PPI m-o-m is forecast to be up 0.2% after last month’s 0.7% jump, the biggest increase since Nov-06. Core PPI y-o-y is projected to rise 3.7% from the 3.5% increase last month, the biggest jump since 1991.

The drop in headline PPI will be due to lower energy prices in August. Crude fell 7% in the month and Natural Gas tumbled almost 14%. Food prices may also come in lower as August agricultural export prices fell 9.6% with crop prices tumbling 15.6%.

If the August Headline PPI data comes in as expected, it will mark the first decline in the index since December.

Inflation sky rocketed in July as the PPI rose 1.2%, over twice what analysts had expected although slightly below June’s 1.8% increase. The core PPI rose 0.7%, well above the 0.2% increase that was expected and the largest increase in that index in 20 months.

The much larger than expected increase in the core finished goods prices reflected strong increases in finished core consumer goods, up 0.6% and an even stronger increase in capital equipment prices, up 0.8%. Auto and truck prices, included in both consumer and capital goods costs, showed strong gains in July despite weak sales for the month. Other products showing gains were pharmaceuticals, plastic products and paper products. There were wide ranging increases in capital equipment prices with metal forming tools and power equipment increasing over 2% for the month.

Finished food prices rose 0.3%, its smallest gain since April as double-digit declines in the prices of fruits, eggs and vegetables offset a 7.4% increase in beef prices and a 5% gain in milk prices. Energy prices rose 3.1% despite the first decline in gasoline prices since April. Double-digit increases in the prices of residential natural gas and LPG offset the improving gasoline prices.

The cost of materials for production continued to increase with core intermediate goods climbing 2% in July and basic materials costs up 3.4%. Energy price passthroughs were still prevalent in fertilizer prices, up 11%, and plastic and chemical prices. Most lumber prices weakened but downstream metal products were still showing large price gains.

Intermediate energy costs rose 4.3% on price increases for fuels, natural gas and jet fuel and crude energy prices rose 6.9% as natural gas, oil and coal prices all showed gains.

Y-on-y finished goods prices were up 9.8%, their largest 12-month gain since June 1981 and finished core prices were up 3.5% from last July , its largest 12-month gain since 1991.

July PPI is expected to increase 0.6%, following a 1.8% rise prior, which would put y-o-y headline PPI to 9.3%. July Core PPI is expected to match June’s 0.2% increase, and would push y-o-y Core PPI to 3.2% from 3% prior.

Higher energy prices are expected to be the largest contributing factor to the expected increase in July headline PPI, but this impact should be more subdued than in June when energy prices jumped 6%, including a 9% increase in gasoline prices. The July CPI report revealed a 4% increase in energy prices, which included a 4.1% increase in gasoline prices and a 7.4% increase in Natural Gas prices. Imported petroleum product prices rose 4% in July and imported natural gas prices rose 5.8%.

Food prices are also expected to have an upward impact on headline PPI, but less so than the 1.5% increase in June. July CPI revealed a 0.9% increase in food prices with cereals, meats, fruits and vegetables each gaining over 1%. The July Ag-Price Index grew 1.9% and the Ag-Export Price Index rose a hefty 6.7%, which each pose upside risks to July headline PPI.

Core PPI is expected to remain subdued for a 2nd consecutive month, though the threat of pipeline inflation continues to linger in the balance. Core consumer goods prices rose 0.3% in June, led by a 2.2% increase in car prices.

Higher-than-expected PPI may provide a good excuse to buy USD, though lingering growth concerns and fears surrounding Freddie and Fannie could limit USD support and lend a bid to the bond market.

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