May 2010 Consumer and Producer Price Indices: No Sign of Imminent Collapse

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) declined 0.2 percent in May. Over the last 12 months, the index increased 2.0 percent before seasonal adjustment. For the second month in a row a decline in the energy index accounted for the seasonally adjusted decrease in the all-items index. The index for energy decreased 2.9 percent in May and more than offset a slight increase in the index for all items less food and energy. The food index was unchanged. Within the energy component, the gasoline index accounted for most of the decrease, although all the major energy indexes declined.

Meanwhile, the seasonally adjusted Producer Price Index for Finished Goods (PPI) moved down 0.3 percent in May. This decline followed a 0.1-percent decrease in April and a 0.7-percent increase in March. At the earlier stages of processing, prices received by producers of intermediate goods advanced 0.4 percent and the crude goods index fell 2.8 percent. On an unadjusted basis, prices for finished goods rose 5.3 percent for the 12 months ended May 2010. This was the second consecutive month of slowing year-over-year advances after a 6.0-percent increase for the 12 months ended March 2010. Core inflation, which excludes energy and food, rose 0.2 percent; core prices are up just 1.3 percent over the past 12 months.

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Finished goods: In May, most of the decline in the index for finished goods can be attributed to lower prices for energy goods, which fell 1.5 percent. Also contributing to lower finished goods prices, the index for finished consumer foods moved down 0.6 percent. By contrast, prices for finished goods less foods and energy rose 0.2 percent. The index for finished energy goods fell 1.5 percent in May, its second consecutive monthly decline. Leading the May decrease, gasoline prices dropped 7.0 percent. Lower prices for liquefied petroleum gas and home heating oil also were factors in the finished energy goods decline.

Intermediate materials: The PPI for Intermediate Materials, Supplies, and Components rose 0.4 percent in May, its third straight monthly advance. Accounting for three-fourths of the broad-based May increase, prices for intermediate materials less foods and energy rose 0.3 percent. The indexes for intermediate energy goods (especially electric power and natural gas to electric utilities) and for intermediate foods and feeds also contributed to the overall advance, moving up 0.5 and 0.4 percent, respectively. On a 12-month basis, prices for intermediate goods climbed 8.5 percent in May, the sixth consecutive month of year-over-year increases.

Crude materials: The PPI for Crude Materials for Further Processing fell 2.8 percent in May. For the three-month period ending in May, crude materials prices moved down 0.8 percent; this followed a 6.5-percent jump from November to February. In May, most of the broad-based monthly decline can be attributed to a 5.1-percent drop in the index for crude energy materials. Also contributing to the May decrease, prices for crude nonfood materials less energy moved down 1.6 percent and the index for crude foodstuffs and feedstuffs fell 0.6 percent.

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Only the pulpwood price index has “tipped over” to date; thus, it is the only index exhibiting slower rates of year-over-year increase. Based upon lumber futures price declines over the past couple of months, however, we would not be surprised to see the solid wood indices begin to move lower soon, reflecting the impacts of withering demand.

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The scaling in the six-chart figure above gives the impression that year-over-year percentage changes in the PPIs of virtually all processing stages or commodity groups are “rocketing to the moon.” The figure immediately above and table below provide a better perspective of the relative magnitudes of the indexes and their respective percentage changes.

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