Tame PPI Suggests Little or No Inflation Pressures

The Producer Price Index for finished goods was up 0.1% in November, following a combined 1.3% increase over the previous two months. The index for finished goods other than foods and energy (core rate) was unchanged. Many analysts were pleasantly surprised with the flat core prices and, therefore, expect the Federal Reserve Board to focus on easing monetary policy. 

According to the Bureau of Labor Statistics November report, the overall index has increased 3.7% for the year; the majority of this increase can be attributed to sharply rising energy prices. Take away food and energy, and the core rate has only risen 1.0% over the past 12 months. 

The biggest mover in the manufacturing industry was the durable manufacturing materials index, which dropped 1.1% in November.    

Finished goods

Price increases for gasoline, liquefied petroleum, diesel fuel, and lubricants -- all smaller increases than last month -- helped fuel a 0.4% increase for the finished energy goods index. Additional finished goods details are as follows:

• Before seasonal adjustment, the index for finished goods fell 0.1% to 139.9 (1982=100).
• For the year over, the finished energy goods index is up 18.8%.
• The finished consumer goods index rose 0.2%, while the index for finished consumer goods other than foods and energy declined 0.1%.
• Capital equipment prices were unchanged in November.
  Price gains: civilian aircraft, passenger cars, contruction machinery and equipment
  Price drops: communication equipment, light and heavy motor trucks, electronic computers, office machines and equipment 
  

Intermediate goods

The producer price index for intermediate materials, supplies, and components fell 0.2% in November, after gaining 0.2% in October. Unusually, the decline had little to do with intermediate energy goods, as they showed no change. November index results for construction and manufacturing materials are as follows:

• Durable manufacturing materials: down 1.1% (up 0.2% in October), with falling prices seen in steel mill products, aluminum, plywood, copper and brass mill shapes, building paper and board, and flat glass and zinc
  
• Nondurable manufacturing materials: down 0.1% (up 0.1% in October)
  - rising prices: sulfuric acids, paint materials, paperboard, caustic soda
  - falling prices: organic chemicals (4.2%)
  
• Construction materials/components: down 0.2% (down 0.1% in October)
  - rising prices: wire and cable, nonferrous wire and cable, heating products
  - falling prices: plywood, softwood lumber, gypsum products

Crude goods

The Index for Crude Materials for Further Processing fell 2.0% in November, pulled down by a 2.3% decline in basic industrial materials index.

Net Output of Total Domestic Manufacturing

The steadiness of the broad PPI carried over to the Index for Net Output of Total Domestic Manufacturing Industries, which edged up 0.1% in November. The index stood at 134.9 (December 1984 = 100), which is 3.5% above its year-ago level.

Some changes for the net output of major industry groups are listed below.

The December 2000 Producer Price Index report will be released on January 12, 2001.