–August PPI +0.4%; PPI Ex-Energy Unchanged; Core +0.1%
–If Crude Materials Price Hikes Sustained, Could ‘Portend’ Passthrough
–China Metals Export Cuts Boost US Export Demand;Grain Exports Also Up

By Denny Gulino

WASHINGTON (MNI) – Tranquil on the surface other than the expected
gasoline price effect, the August PPI’s measure of raw materials prices
reflected boiling price pressures for metals and grains as export demand
grows.

The Bureau of Labor Statistics Friday reported overall the Producer
Price Index rose 0.4%, a little stronger than the median expectations
for a 0.3% increase. Without counting energy, the index would have been
unchanged. Gasoline rose 7.5% in August, a little more than most
forecasters expected.

The core rate rose the anticipated 0.1% in August, with the most
notable category pharmaceuticals, showing the same upward acceleration
experienced this time of year since 2008, according to senior BLS
analyst Scott Sager to MNI just prior to the report’s public release.

Pharmaceutical prices rose 0.6% in August and “have been running
pretty high the last few months,” he said. Pharma was up 0.7% in July.

Year to date, the core is running at an annual adjusted rate of
2.1%, a little more acceleration that last year at this time when it was
1.5%. The broadest PPI index, however, is running behind last year, at
2.0%. At this time last year the PPI was at 4.2%.

More interesting were the price pressures at the beginning of the
supply pipeline where crude materials prices rose 2.3% for the single
month, after going up 2.7% in July. The 12-month rates of increase for
crude materials have been in double digits since December even though
the monthly changes have had minus signs for three months prior to
August.

Although typically the most volatile part of the pipeline with
little effect on the trend for intermediate and finished goods, if price
hikes are “consistent over a few months you can probably start to expect
some passthrough,” Sager said. “If we see another month or two of this,
particularly with the grains in the food area, that could portend
something down the road in later stages.”

In August there was “increased export demand, pushing prices a
little higher, a lot of it grain related,” Sager said. It was reflected
even in the core rate for raw materials which, although nominally
excluding food, does include corn used for ethanol production and
soybeans used for biodiesel. In August wheat at the raw materials stage
skyrocketed 20.5% while corn was up 11.2% and soybean prices rose
1.1%, all reflecting continued world demand in a period of bad crops
in several locations outside the U.S. accompanied by a weaker dollar.

There was additional price pressure in the metals area, he said,
and for a different reason, decreased metals exports by China. Scrap
steel prices jumped 4.1% in August. Non-ferrous scrap rose even more,
9.5%. “It’s a result of China reducing their exports of various types of
metails, creating heightened (export) demand,” Sager said.

August’s intermediate stage prices rose only 0.3% overall, and for
the core, were up just 0.1%.

Elsewhere in the report, July’s spike in light truck prices, a 1.5%
increase blamed on tight inventories, did not repeat for August, a month
with an only 0.2% rise.

Expectations in a Market News International survey of economists
centered on a 0.3% increase in the overall finished goods index and a
0.1% increase in the PPI’s core rate for August.

** Market News International Washington Bureau: 202-371-2121 **

[TOPICS: MAUDS$,MGU$$$,M$U$$$,MX$$$$]