Producer Prices Surge by 10.0% Over Past 12 Months

PPI up 10.0% for 12 months through February 2022; annualized pace also at 10.0%

In February 2022, the Producer Price Index (PPI) for final demand increased by 0.8% on a seasonally adjusted basis. This follows monthly increases of 0.4% in December 2021 and 1.2% in January 2022. On an unadjusted basis, the PPI has risen by 10.0% for the 12 months ending in February 2022.

The monthly rise of 0.8% in February also equates to a compound annualized growth rate (CAGR) of 10.0%. In general, the PPI is a gauge of inflation that measures increases to input costs faced by the producers of goods and services. Because it measures price changes before they reach consumers, some analysts see it as an earlier predictor of inflation than the CPI.

Key Takeaways

  • The Producer Price Index (PPI) for final demand was up by 0.8% in February 2022.
  • It has risen by 10.0% over the past 12 months, and the current annualized pace also is 10.0%.
  • However, the February increase was lower than the 1.2% rise in January.
  • The index for goods was up by 2.4% in February, but the index for services was unchanged.
  • Higher consumer price inflation may be ahead.

High Level Detail

In February 2022, driving the overall rise of 0.8% in the PPI for final demand was an increase of 2.4% for final demand goods. The index for final demand services was unchanged. Prices for final demand less foods, energy, and trade services increased 0.2% in February 2022, down from 0.8% in January. For the 12 months ending in February 2022, the index for final demand less foods, energy, and trade services moved up by 6.6%.

Final Demand Services Detail

As noted above, prices for final demand services were unchanged in February. In January, they were up by 1.0%.

In February, a 1.9% rise in the index for final demand transportation and warehousing services and a 0.2% increase in margins for final demand trade services offset a 0.4% drop in the index for final demand services less trade, transportation, and warehousing. The trade indexes measure changes in the profit margins received by wholesalers and retailers.

In February, prices for truck transportation of freight rose by 2.0%. The indexes for food and alcohol retailing, machinery and vehicle wholesaling, transportation of passengers (partial), and outpatient care (partial) also increased.

Prices for portfolio management fell by 4.2% in February. Other price declines were recorded in the indexes for: guest room rental; apparel, jewelry, footwear, and accessories retailing; automobile retailing (partial); and residential real estate loans (partial).

Final Demand Goods Detail

As noted above, prices for final demand goods rose by 2.4% in February. This was up from 1.5% in January. It also was the largest monthly increase since data were first calculated on this basis in December 2009.

Two-thirds of the February increase in final demand goods was driven by an 8.2% rise in the index for final demand energy. Prices for final demand goods less foods and energy and for final demand foods also moved higher, by 0.7% and 1.9%, respectively.

Almost 40% of the February increase in prices for final demand goods came from the index for gasoline, which was up by 14.8%. Increases also were observed in the prices for diesel fuel, electric power, jet fuel, motor vehicles and equipment, and dairy products.

Meanwhile, the index for fresh and dry vegetables fell by 9.4%. Other notable price declines were recorded for beef and veal, as well as and for hot rolled steel sheet and strip.

Intermediate Demand Overview

Within intermediate demand in February, prices for processed goods increased by 1.6%, the index
for unprocessed goods shot up by 14.6%, and prices for services were unchanged. The 12-month increases in these measures were, respectively, 23.3%, 35.1%, and 7.4%.

The 14.6% monthly rise in prices for unprocessed goods for intermediate demand was the largest increase since January 2001, when the monthly advance was 17.4%. About 90% of this surge in February flowed from a 32.3% jump in the index for unprocessed energy materials.

Among the components of unprocessed energy materials is natural gas, the index for which surged by 65.1% in February. The increase in natural gas prices alone accounted for more than two-thirds of the total February advance in prices for unprocessed goods for intermediate demand.

Final Demand vs. Intermediate Demand

Examples of final demand goods include pharmaceutical preparations destined for personal consumption, construction machinery and equipment for private capital investment, diesel fuel and jet fuel for government, and organic chemicals for export. Examples of final demand services include consumer loan services, apparel retailing margins, passenger air transportation, wired and wireless telecommunication services for government, wholesale margins from machinery and equipment sold for capital investment, and wholesale margins from organic chemicals sold for export. Examples of final demand construction include new school construction and new hospital construction.

Intermediate demand, meanwhile, measures price changes for goods, services, and construction sold to business as inputs to production.

Article Sources

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  1. U.S. Bureau of Labor Statistics. "Producer Price Index News Release Summary."

  2. U.S. Bureau of Labor Statistics. "Improvements to the Producer Price Index measure: the Final-Demand–Intermediate-Demand system."

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