Producer Price Index

In each Economic Update, the Research staff analyzes recently released economic indicators and addresses what these indicators mean for REALTORS® and their clients. Today’s update discusses producer prices and the cost of living adjustment.

• Producer price data released today showed that the prices paid by producers rose 0.1 percent for finished goods in June.  Excluding volatile food and energy prices, finished goods prices rose 0.2 percent in June.  Energy prices declined 0.9 percent while food prices rose 0.5 percent in June.
• If the monthly trend in finished goods prices were to continue, this might be cause for concern, but declines were seen in the prices of intermediate and crude goods suggesting weakness ahead for finished goods prices.  Additionally, price weakness earlier in the year has kept headline producer price inflation to a low 0.7 percent year over year rate while core producer price growth is only 2.6 percent.
• This relatively low inflation reading gives the Federal Reserve room to continue its current policy of keeping rates low while watching for signs of further economic pressure that might signal a need for extra stimulus.  The minutes from the June meeting released yesterday show that some at the Fed are concerned about the risks of policy accommodation leading to inflation, but those views seem to be held by a minority.  A greater number are concerned about economic weakness, particularly in the job market.
• Monday data on prices paid by consumers will be out.  Weakness in energy prices is likely to keep headline inflation—prices paid for all items—low, while core inflation is likely to continue to increase at about 2 percent.
• Cost of living adjustments for social security beneficiaries are made based on CPI in the third quarter.  On its current trajectory, the index is likely to be higher this year than last year meaning some additional money to offset rising costs for beneficiaries in 2013.