Softer petroleum quotes likely led US August PPI decline

A petroleum-led drop in wholesale energy quotes, combined with a partial reversal of July's hike in services costs, probably pared the Producer Price Index for final demand (PPI-fd) by 0.6% in August, reversing a little over half of the 1.1% rise posted over the prior three months. 

Reflecting double-digit declines in diesel fuel, gasoline and home heating oil costs, the PPI for finished energy goods likely dropped by 7.8% - the largestpullback since last January. Consistent with recent intra-quarterly patterns, services costs are expected to move one tick lower, after a 0.6% increase over the June-July span. 

"Our forecasts would place the overall and core PPI-fds 1.3% below and 0.5% above their respective August 2014 levels. Market participants still appear to have some difficulty getting a handle on the current PPI-fd measures. Using the previous finished-goods framework, the analysis indicates that the "old" PPI probably tumbled by 1.6% during the reference period, after a 0.1% downtick in July", says Societe Generale.

Supported by modest increases in motor vehicle costs, the core finished goods measure excluding volatile food and energy components is expected to move one tick higher once again in August. 

The dramatic weakness in energy goods costs over the past 12 months probably left the aggregate finished goods PPI 4.0% below it August 2014 level. Led by higher consumer goods costs, the year-to-year growth in the core finished goods PPI probably held steady at 2.2%.