October Consumer Prices Hold Producer Price Increases in Check

Posted on November 17, 2010

The Bureau of Labor Statistics reported that the Consumer Price Index (CPI-U) increased 0.2% in October on a seasonally adjusted basis. This was less than the consensus estimate of 0.3%. Of course, if we exclude food and energy, the CPI index appears stable for the third consecutive month. As I wrote about yesterday in my report on monthly PPI, food and energy simply cannot be ignored. The increases in food and energy prices are driven by high commodity prices across a wide array of goods and the effects are visible in the more volatile Producer Price Index (PPI). These increases will ultimately have an impact on either corporate profitability or consumption.

Consumer and Producer Price Indexes, last 12 months

Source: The Mays Report / Bureau of Labor Statistics


The energy index increased by 2.6% in October for the fourth consecutive month. The gasoline index rose 4.6% on top of a 1.6% increase in September. This is inline with gasoline prices and inventories over the Sept-Oct period. On a year-to-year basis, the energy index is up 5.9%.

Gasoline Prices and Inventories

Source: The Mays Report / EIA

 Another notable year-to-year increase was in the used car index. The used car index rose 8.6% in October. There was one notable decline in the CPI index. The Fruits and vegetables index declined  -.7% month-to-month and -8.7% over the last six months.  This is in line with a 3.68% October decline in the PPI index for fruit and vegetables. Over the last year the prices producers received in this category have dropped by 10%.

For the time being it seems that with food and energy prices being the exception, the higher prices received by producers have been absorbed by wholesalers and retailers. Who will pay the price in the long run is what remains to be seen.


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