May Producer Price Index Drops 0.2%; Up 2% Year-Over-Year

The Producer Price Index (PPI) has dropped 0.2% for the month of May, according to data from the Bureau of Labor Statistics. The index dropped by 0.1% without the data related to food and energy. PPI final demand has increased by 2% compared to May 2013. The PPI measures the change in selling prices received by domestic producers and has, as of January 2014, undergone important changes in the its composition. The index now includes data on services and constructions and also government purchases and exports.

Experts expect the markets to pay very little attention to these numbers, though, with developments in fixed income dominating the headlines. In an intervention on CNBC, Steve Liesman, their senior economics reporter, has insisted that lower PPI is not a bad thing and that it is not a signal for lower demand. He argues that the discrepancy between expectations and actual data is solely due to the overhaul of the index. While before it used to cover about one third of the US economy, it has been redesigned to cover about 75% of the economy.

“We have a new index here. We’re learning how to read what was essentially an index that covered about a third of the economy to one that covers 75% of the economy”, said Liesman.

Liesman claims that, as the US has shifted from an industrialized to a service economy, the statistics have not kept up with times. The addition of data with regard to services has made predicting future developments more difficult for economists. The last two months have brought significant gains in trade service inflation, which have had a positive impact on the index. Leisman claims it is safe to guess that these have now come off.

“I think what’s fair to say is [...] we’re not getting a whole lot of pipeline pressure outside of commodities”, he added.

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