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First Cut: Final Demand PPI lower in September on energy and trade

The Final Demand Producer Price Index (PPI) dipped 0.3% in September from August and was up 1.4% compared to a year-ago. Excluding food, energy, and trade services, the index was flat month-over-month and up 1.7% compared to September 2018.

Food prices were up 0.3% in September and up 2.7% compared to a year-ago. The increase may contain a hint of higher tariff costs as the price of foods for export was up 0.4%.

Energy costs were down 2.5% in September and down 8.7% from September 2018. The decline in energy was not unexpected given that the PPI takes its read on energy costs relatively early in the month. The rise in prices that followed on the attack on Saudi oil production was not captured in the report.

The price of services was down 0.2% month-over-month and up 2.2% compared to September 2018. Trade services prices were 1.0% lower from the prior month and up 3.1% from a year-ago. The decrease reflected prices of trade in finished goods (down 1.0%) and transportation of passengers (down 2.5%).

The PPI is not the most closely-watched among the major inflation indicators by Fed policymakers. There’s enough in terms of some one-offs in these numbers that the soft readings will not give the FOMC much concern about another decline in inflation. What it will confirm is that commodities continue to provide little or no consistent upward pressure for prices and that it is services that is providing most of the impetus. However, that it was trade services that have softened may add to the worries that trade policy is going to have a negative impact on the economy in terms of the dual mandate, not just in threatening growth and employment.

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