June 2010 Consumer and Producer Price Indices: More Gradual Erosion

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The seasonally adjusted Consumer Price Index for All Urban Consumers (CPI-U) declined 0.1 percent in June, the third consecutive monthly drop. The index has increased 1.1 percent over the last 12 months. As was the case in April and May, a decline in the energy index caused the seasonally adjusted all-items decrease in June. The index for energy decreased 2.9 percent in June, the same decline as in May, with a decline in the gasoline index accounting for most of the decrease. This more than offset an increase in the index for all items less food and energy, while the food index was unchanged for the second month in a row. The index for all items less food and energy (a.k.a., the “core” index) rose 0.2 percent in June after increasing 0.1 percent in May. Increases among a variety of items -- including shelter, apparel, used cars, medical care, tobacco, and recreation -- more than offset declines in the indexes for household furnishings and operations and for airline fares. The 12-month change in the core index remained at 0.9 percent for the third month in a row.

The seasonally adjusted Producer Price Index for Finished Goods (PPI) also moved down in June (by 0.5 percent). This decrease followed declines of 0.3 percent in May and 0.1 percent in April. On an unadjusted basis, prices for finished goods rose 2.8 percent for the 12 months ended June 2010, their third straight month of slowing year-over-year advances.

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At the earlier stages of processing, prices received by producers of intermediate goods moved down 0.9 percent in June (its first decline since July 2009) and the crude goods index dropped 2.4 percent.

Finished goods: In June, over eighty percent of the 0.5 percent decrease in the finished goods index could be traced to prices for consumer foods, which fell 2.2 percent. Also contributing to lower finished goods prices, the index for finished energy goods declined 0.5 percent. By contrast, prices for finished goods other than foods and energy inched up 0.1 percent in June.

Intermediate goods: About two-thirds of the June decrease can be attributed to lower prices for intermediate energy goods, which fell 2.6 percent. The index for intermediate materials less foods and energy also contributed to the overall decline, moving down 0.4 percent. By contrast, prices for intermediate foods and feeds inched up 0.1 percent. On a 12-month basis, prices for intermediate goods climbed 6.4 percent, their seventh consecutive month of year-over-year advances.

Crude goods: For the three months ending in June, crude material prices fell 6.2 percent after moving up 8.2 percent from December to March. In June, about eighty percent of the monthly decrease was due to the index for crude foodstuffs and feedstuffs, which dropped 5.3 percent. Lower prices for crude nonfood materials less energy also contributed to the overall decline, falling 4.8 percent. By contrast, the index for crude energy materials rose 1.7 percent in June.

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With the exception of Pulp, Paper and Allied Products, the forest products-related PPIs we track retreated in June. Other than pulpwood, all of the PPIs are higher than they were a year earlier. Given the recent declines in both Lumber and Wood Products, and Softwood Lumber, we expect the index for Softwood Logs, Bolts and Timber to retreat more quickly during the next several months.

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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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