Producer Price Index: Down Over the Last Year

Chart of the Week for September 18 - September 24, 2009

The Finished Goods Producer Price Index ("PPI") measures the average change in wholesale prices across the domestic economy and is a closely watched indicator of inflationary pressure. Finished goods are final stage products that are ready for the consumer to buy and therefore include all production line price changes. Economists measure finished goods PPI in terms of headline (all products) and core (excluding oil and food). This chart discusses the headline PPI.

The chart above illustrates the downward trend in year-over-year producer prices started in September 2008. The year ended July 2009 marked the low point with prices declining 6.4% year-over-year. Some relative improvement was seen in August 2009 with prices only declining 4.3% year-over-year and actually increasing 1.7% for the month of August 2009 with the help of higher energy prices. With the year-over-year change in negative territory, some investors are concerned about deflation and the possible negative impacts of deflation on the economy. However, prices have remained the same or increased in four of the last five months providing some expectation that the negative year-over-year trend may not continue.

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