-October PPI Below Expectations at -0.2% Overall and Core
-Uncertain Economic Conditions Globally Drive up Precious Metals Prices

By Denny Gulino

WASHINGTON (MNI) – Strong summer and fall demand for cars and trucks kept
manufacturers’ discounting to a minimum and so October’s new-model prices looked
lower in comparison, bestowing an unexpected decline on the PPI core rate.

The Bureau of Labor Statistics Wednesday reported that both the overall
Producer Price Index and the core rate were down 0.2%. Excluding cars and trucks
there would have been no change in the core rate, still under the 0.1% increase
anticipated for forecasters in an MNI survey.

The turnaround drop in gasoline prices, of 2.2% after September’s 9.8%
increase was well anticipated but the largest drop in cars prices since July
2009, 1.6%, was not. Truck prices after seasonal adjustment were similarly down
1.5%, the biggest drop since October 2010.

“Leading up to October, sales were pretty strong, so manufacturers didn’t
have the need to do a whole lot of discounting,” senior BLS analyst Scott Sager
told MNI. “Normally with the introduction of new models they remove what
discounting they had in place but since they didn’t have much discounting, there
wasn’t much to remove.”

“So, what we normally see as an increase from a discount removal, didn’t
occur,” he added.

The PPI’s methodology brings new model prices in all in a single month
where under Consumer Price Index methodology “they come in on a rolling basis
when sales of the new overtake sales of the old models.”

Refinery products dominated the energy price declines, so while gasoline
was the main item, home heating oil, liquefied petroleum gas and “a number of
different petroleum related products,” all declined in price in October, he
said.

The October moderation extended earlier in the supply pipeline, with raw
materials prices up just 0.9%, the least in four months, with the core rate for
crude materials dropping 1.4%.

Midway through the pipeline, intermediate goods prices were down a tenth
and the core rate was unchanged. despite a stronger demand for precious metals
which drove their prices higher. “There was higher demand for precious metals
because of the uncertain economic situation globally” accompanied by higher
prices for copper driven up by “strikes and labor issues” continuing in South
Africa, he said. Nevertheless soft steel prices offset those increases.

Again, there was little evidence of a drought effect in food prices which
rose 0.4%, below the 0.5% average increase for the most recent five months. The
BLS also noted it could find “virtually no impact” on data collection or survey
response attributable to the Sandy superstorm.

Year to date, the overall PPI has increased at an annualized adjusted rate
of 2.7%, less than last year’s 5.6% at the same point and even 2010’s 3.0%.

Without counting energy, October’s overall finished goods index would have
been down a tenth.

** MNI Washington Bureau: 202-371-2121 **

–email: dgulino@mni-news.com

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