WASHINGTON — The September producer price data had both upside (overall result) and downside (core) surprises but were largely an energy story that played out alongside weakening demand for electronics.
September PPI printed up 1.1%, with core flat for a 2.1% rise overall and a 2.3% core gain over the year.
Food prices were up 0.2% on surges in fruits and dairy products. Beef and poultry also rose. Pasta, pork, soft drinks and processed fruits and vegetables fell in price as offsets.
Energy prices surged 4.7% as gasoline printed up 9.8%, heating oil rose 3.1% and residential natural gas grew 1.3%, all as expected.
Core prices were boosted by light trucks at a 0.3% increase and pharmaceuticals at a 0.3% rise, but cars printed down 0.2% (a 0.7% decline before adjustment), electronics fell 1.5% and communications equipment dropped 0.7%. The last had its biggest drop since a 1.5% slide in February 2004 and was a big offset.
It is possible that a weakening world economy has lowered electronics costs or demand.
In the pipeline, intermediate PPI was up 0.6% in its core on rises in metals, chemicals, and plastics. Crude less energy was up 1.6% on hikes in cotton, metals, and stone used in building. These suggest core should not languish for long.
So the bottom line from the PPI data is that core prices are behaved well but probably are not poised for a sustained decline.
Market News International is a real-time global news service for fixed-income and foreign exchange market professionals. See www.marketnews.com.