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US Producer Prices Fall

September 13, 2018

The Producer Price Index for final demand declined 0.1 percent in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in July and increased 0.3 percent in June. (See table A.) On an unadjusted basis, the final demand index rose 2.8 percent for the 12 months ended in August.

In August, the decline in the final demand index can be attributed to a 0.1-percent decrease in prices for final demand services. The index for final demand goods was unchanged.

Investors expected the PPI to rise 0.2 percent.

The index for final demand less foods, energy, and trade services edged up 0.1 percent in August after advancing 0.3 percent in both July and June. For the 12 months ended in August, prices for final demand less foods, energy, and trade services rose 2.9 percent.

Final demand

Final demand services: The index for final demand services inched down 0.1 percent in August, the same as in July. The August decrease was led by a 0.9-percent decline in the index for final demand trade services. (Trade indexes measure changes in margins received by wholesalers and retailers.)

Prices for final demand transportation and warehousing services fell 0.6 percent. In contrast, the index for final demand services less trade, transportation, and warehousing rose 0.3 percent.

Product detail: In August, over 80 percent of the decrease in prices for final demand services can be traced to margins for machinery and equipment wholesaling, which fell 1.7 percent. The indexes for health, beauty, and optical goods retailing; application software publishing; airline passenger services; and hospital outpatient care also moved lower. Conversely, prices for loan services (partial) jumped 3.0 percent. The indexes for food retailing, bundled wired telecommunication access services, and physician care also rose.

Final demand goods: The index for final demand goods was unchanged in August after increasing in each of the prior three months. In August, a 0.4-percent advance in prices for final demand energy offset a 0.6-percent decline in the index for final demand foods. Prices for final demand goods less foods and energy were unchanged.

Product detail: In August, the index for residential electric power moved up 0.6 percent. Prices for fresh and dry vegetables, corn, gasoline, and passenger cars also increased. In contrast, the index for fresh fruits and melons dropped 11.3 percent. Prices for diesel fuel, meats, eggs for fresh use, and iron and steel scrap also declined.

Intermediate Demand by Commodity Type

Within intermediate demand in August, prices for processed goods were unchanged, the index for unprocessed goods fell 5.8 percent, and prices for services edged up 0.1 percent.

Processed goods for intermediate demand: The index for processed goods for intermediate demand was unchanged in August, the same as in July. In August, a 0.2-percent rise in prices for processed materials less foods and energy offset declines of 0.8 percent for processed foods and feeds and 0.3 percent for processed energy goods. For the 12 months ended in August, the index for processed goods for intermediate demand climbed 6.3 percent.

Product detail: In August, prices for steel mill products increased 2.6 percent. The indexes for industrial electric power, industrial chemicals, commercial electric power, and jet fuel also moved higher. Conversely, meat prices decreased 1.7 percent. The indexes for diesel fuel, lumber, primary nonferrous metals, and natural cheese (except cottage cheese) also declined.

Unprocessed goods for intermediate demand: The index for unprocessed goods for intermediate demand fell 5.8 percent in August, the largest decrease since dropping 9.7 percent in January 2015. In August, 60 percent of the broad-based decline is attributable to prices for unprocessed energy materials, which moved down 7.9 percent. The indexes for unprocessed foodstuffs and feedstuffs and for unprocessed nonfood materials less energy fell 5.2 percent and 1.9 percent, respectively. For the 12 months ended in August, prices for unprocessed goods for intermediate demand advanced 2.9 percent.

Product detail: Over half of the August decrease in the index for unprocessed goods for intermediate demand can be traced to prices for crude petroleum, which dropped 13.4 percent. The indexes for slaughter poultry, slaughter barrows and gilts, raw milk, iron and steel scrap, and grapes also moved lower. In contrast, corn prices rose 11.7 percent. The indexes for hay, hayseeds, and oilseeds and for wastepaper also increased.

Services for intermediate demand: The index for services for intermediate demand edged up 0.1 percent in August after climbing 0.2 percent in July. The August increase was the result of a 0.5-percent advance in the index for services less trade, transportation, and warehousing for intermediate demand. Conversely, margins for trade services for intermediate demand fell 1.1 percent, and prices for transportation and warehousing services for intermediate demand inched down 0.1 percent. For the 12 months ended in August, prices for services for intermediate demand rose 2.9 percent.

Product detail: Most of the August increase in the index for services for intermediate demand can be traced to prices for gross rents for retail properties, which advanced 5.5 percent. The indexes for loan services (partial), portfolio management, financial auditing, and chemicals and allied products wholesaling also increased. In contrast, margins for metals, minerals, and ores wholesaling declined 10.5 percent. The indexes for tax preparation and planning; hardware, building materials, and supplies retailing; and airline passenger services also decreased.

Intermediate Demand by Production Flow

Stage 4 intermediate demand: Prices for stage 4 intermediate demand were unchanged in August following a 0.1-percent decline in July. In August, the index for total services inputs to stage 4 intermediate demand rose 0.2 percent. Conversely, prices for total goods inputs edged down 0.1 percent. (See table D.) Increases in the indexes for gross rents for retail properties, loan services (partial), portfolio management, chemicals and allied products wholesaling, and corn were offset by declines in the indexes for diesel fuel; metals, minerals, and ores wholesaling; grapes; lumber; and hardware, building materials, and supplies retailing. (See table 6.) For the 12 months ended in
August, prices for stage 4 intermediate demand climbed 3.5 percent.

Stage 3 intermediate demand: The index for stage 3 intermediate demand declined 0.8 percent in August, the largest decrease since falling 0.8 percent in February 2016. In August, prices for total goods inputs to stage 3 intermediate demand moved down 1.5 percent. In contrast, the index for total services inputs edged up 0.1 percent. Declines in the indexes for slaughter poultry; slaughter barrows and gilts; raw milk; metals, minerals, and ores wholesaling; diesel fuel; and tax preparation and planning outweighed increases in prices for gross rents for retail properties, steel mill products, and jet fuel. For the 12 months ended in August, the index for stage 3 intermediate demand increased 4.3 percent.

Stage 2 intermediate demand: The index for stage 2 intermediate demand fell 1.2 percent in August, the largest decline since a 1.2-percent decrease in March. In August, prices for total goods inputs to stage 2 intermediate demand moved down 2.8 percent. Conversely, the index for total services inputs inched up 0.1 percent. Declines in the indexes for crude petroleum; natural gas; tax preparation and planning; lumber; hardware, building materials, and supplies retailing; and airline passenger services outweighed advances in prices for financial auditing; hay, hayseeds, and oilseeds; and corn. For the 12 months ended in August, the index for stage 2 intermediate demand rose 5.4 percent.

Stage 1 intermediate demand: Prices for stage 1 intermediate demand declined 0.5 percent in August, the first decrease since falling 0.6 percent in August 2016. In August 2018, the index for total goods inputs to stage 1 intermediate demand dropped 0.8 percent, and prices for total services inputs moved down 0.2 percent. Declines in the indexes for diesel fuel; metals, minerals, and ores wholesaling; iron and steel scrap; nonferrous scrap; crude petroleum; and airline passenger services outweighed higher prices for wastepaper, corn, and loan services (partial). For the 12 months ended in August, the index for stage 1 intermediate demand increased 5.9 percent.

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