The producer price index for final demand fell 0.4% in March, after adjusting seasonally, the US Bureau of Labor Statistics reported today. Final demand prices rose 0.1% in February and 0.6% in January. On an unadjusted basis.
In March, more than 70% of the decline in the final demand index was attributed to the prices of final demand goods, which fell by 0.9%. The final demand services index fell by 0.2%.
Final demand prices, excluding food, energy and commercial services, rose 0.1% in March, after rising 0.4% in each of the previous three months. For the twelve months ending in March, the final demand index, excluding food, energy and commercial services, rose by 3.4 percent.%.
Final Order
Final demand goods: Final demand goods prices fell 0.9% in March, their biggest decline since falling 1.4% in October 2023. More than three-quarters of the decline in March was attributed to a 4.0% drop in the required energy index. Final demand food prices fell 2.1%. In contrast, the final demand commodity index, excluding food and energy, rose by 0.3%.
Product details: Two-thirds of the decline in the final demand goods index in March was attributed to the 11.1% drop in gasoline prices. Chicken eggs, beef and veal, fresh and dried vegetables, diesel fuel, and jet fuel also declined. On the other hand, the prices of steel mill products increased by 7.1%. Indicators of household electric power and indicators of processed young chickens also rose.
Final order services: Prices of final order services fell by 0.2% in March, their biggest decline since falling by 0.2% in July 2024. The March decline led by a 0.7% drop in trade services profit margins for final demand. (Trade indices measure changes in profit margins obtained by wholesalers and retailers.)
Factors affecting monthly US producer price index changes
Changes in the PPI can be affected by various factors that affect production costs and the prices that producers receive for their goods and services. Here are some of the main factors that influence PPI changes:
1. Dynamics of supply and demand
Supply chain disruptions: Any supply chain disruptions, such as natural disasters, political instability or pandemics, can lead to shortages of raw materials, leading to higher production costs.
Consumer demand: Increased consumer demand for certain products can lead to higher prices, as producers may raise their prices in response to supply shortages.
2. Input costs
– Raw material prices: Fluctuations in the prices of raw materials (e.g. metals, energy, agricultural products) directly affect the cost of production. Higher raw material costs usually increase the PPI.
Labor costs: Changes in wages, benefits and availability of labor can affect production costs. Rising labour costs can push producers to raise their prices.
3. Energy prices
Fuel and energy costs: Since energy is an important input for many industries, changes in oil, gas and electricity prices can have a significant impact on the overall PPI.
4. Monetary policy
Interest rates: The Fed’s monetary policy, including changes in interest rates, can affect companies’ borrowing costs. Higher interest rates may increase production costs, and therefore the producer price index.
Inflation expectations: If companies expect inflation to rise, prices may proactively increase, affecting the PPI.
5. Economic conditions
Economic growth: A strong economy usually leads to increased production and demand, which can push prices up.
Global economic trends: Changes in the global economy, such as international trade agreements, tariffs and global demand, can affect production costs and prices.
Comparison between PPI and CPI: how do they measure inflation differently?
The monthly Producer Price Index (PPI) and the Consumer Price Index (CPI) are both important economic indicators used to measure inflation, but they focus on different stages of the economic process and have distinctive characteristics. Here is a breakdown of the main differences between the two:
1. Definition and purpose
– Producer Price Index:
– Measures the average change in the selling prices that domestic producers receive for their production over time.
– Reflects price changes from the perspective of the seller(s) and covers wholesale prices.
– Consumer Price Index:
It measures the average change in prices paid by consumers for a basket of goods and services over time.
– Reflects price changes from the perspective of the buyer(s) and covers retail prices.
2. Focus and scope
– Producer Price Index:
– Focuses on goods and services at the wholesale level before they reach consumers.
– Captures changes in the prices of raw materials, intermediate goods and finished goods.
– Consumer Price Index:
It focuses on the prices consumers pay for goods and services, including food, housing, clothing and transportation.
– Measures the cost of a fixed basket of goods and services that represent typical consumption patterns.
3. Inflation indicators
– It is often considered a leading indicator of inflation because changes in producer prices can affect consumer prices.
– Producer Price Index:
– A higher PPI may indicate possible future increases in the CPI as production costs shift to consumers.
– Consumer Price Index:
4. Use in economic policy
– Producer Price Index:
– Used by companies and policymakers to measure price trends at the wholesale level.
– Consumer Price Index:
It is used by the Fed and other policymakers to make decisions on monetary policy, including interest rates.
