U.S. PPI rises at stronger rate in September, likely to feed through to firming in consumer prices

Producer prices in the U.S. rose at a stronger rate in September, after a rise throughout core and non-core price components. In the month, headline PPI rose 0.3 percent, as compared with consensus projection of a rise of 0.2 percent. Excluding food, energy and trade, PPI was up 0.3 percent sequentially.

The goods component of PPI rose 0.7 percent following two straight drops as both energy and food prices rebounded from the weakness recorded in recent months. Stripping energy and food, prices of goods increased 0.3 percent. On the other hand, services PPI was more subdued, increasing modestly by 0.1 percent sequentially as a solid rise in trade and transportation services was countered to certain extent by falling trade prices.

The year-on-year change in producer prices has been steadying around the neutral levels since the beginning of 2016 after a gradual firming in domestic pipeline price pressures and recovered momentum further in September, stated Barclays in a research note. Final demand excluding food, energy and trade services was up 1.5 percent year-on-year, accelerating from August.

The BLS has reported PPI personal consumption since 2011, a good leading indicator for CPI inflation. PPI personal consumption was up 0.3 percent sequentially and 0.7 percent year-on-year. Excluding energy and food, PPI personal consumption was up 0.1 percent month-on-month and 1.2 percent year-on-year. In all, the PPI report implies certain continued progress toward stronger pipeline pressures. As the drag from volatile components such as food and energy diminishes, PPI is expected to gradually rebound and feed through to a firming in consumer prices, according to Barclays.

“We see this report as broadly consistent with our forecast for headline (+0.4 percent m/m ) and core (+0.2 percent m/m) CPI for September”, added Barclays.