Energy Price Rises Continue Unabated

 

Core PPI, a more stable indicator of producer prices as it excludes the volatile food and energy prices, rose a moderate 0.3 percent in March. There has been a steady rise in the core PPI in recent months, with the index up 1 percent in the first quarter 2011 and 1.9 percent year-over-year.
Courtesy of NAHB

Producer Price Index advanced in March, spurred by further growth in energy prices. This extends its string of increases to nine months.  Over the past year, the price of finished goods has advanced 5.8 percent.

Rising energy prices were again the main driver of PPI growth, accounting for nearly 90 percent of the increase in the finished goods index. Energy prices were up 2.6 percent in March. Over 80 percent of the March increase was attributed to the gasoline index, which climbed 5.7 percent during the month and is up 31.2 percent year-over-year.

Futures markets indicate the prices of West Texas Intermediate and Brent are likely to peak in the next few months.  However, relief from high energy prices is unlikely in the near term, with futures markets indicating that oil prices will remain elevated through 2011 and much of 2012.

The index of inputs into residential construction rose 1.6 percent in March and is up 5.7 percent year-over-year. There were notable increases in gypsum (+7 percent) steel (+5.3 percent), oriented strand board (+4.3 percent) and plastic products used in construction (1.5 percent). Most other building materials experienced a modest increase up to 1 percent.

The main exception was copper and copper products, which ended an extended period of eight consecutive rises with a 1.8% decline. The index for inputs into residential construction also includes petroleum products, so the index was also heavily influenced by the 14.1 percent rise in regular gasoline and 11.1 percent rise in #2 diesel fuel.

The near term forecasts for the PPI reflects a continuation of the strong growth in oil prices experienced over the past six months.  However, once oil prices reach their plateau, the PPI will settle back with only modest increases expected through the second half of 2011 and 2012.

- Courtesy of NAHB