Core PPI Comes Hotter Than Expected, Driven By Rising “Brokerage, Investment Advice” Prices

While headline PPI came in at 0.3% on a sequential basis, as expected, and rose 1.6% on the year, also in line with expectations, it was the core PPI that came in modestly hotter than expected, printing at 0.2%, above the expected 0.1%, and rose 1.6% Y/Y, above the 1.5% expected, and far above the -1.1% drop reported one year ago.The headline jump was driven by a spike in energy prices, as final demand energy rose 2.6% in December. Accounting for almost half of the December jump in final demand goods prices, the index for gasoline climbed 7.8% , while heating oil was up 9.6%.

Away from the non-core energy and gasoline prices, the headline PPI rise was driven, surprisingly, mostly by “prices for securities brokerage, dealing, investment advice, and related services” which advanced 4.4%. In other words, brokers are capitalizing on the rush by retail investors to jump in the market and are hiking prices.

Nonetheless, on an annual basis, the 1.6% increase in PPI was the highest since August 2014.

 

Broken down between goods and service:

The breakdown:

The breakdown between goods and services:

Final demand goods: Prices for final demand goods jumped 0.7 percent in December, the largest increase since a 0.7-percent rise in June. Sixty percent of the December broad-based advance can be traced to the index for final demand energy, which climbed 2.6 percent. Prices for final demand goods less foods and energy rose 0.3 percent, and the final demand foods index increased 0.7 percent.

Accounting for almost half of the December jump in final demand goods prices, the index for gasoline climbed 7.8 percent. Prices for light motor trucks, jet fuel, iron and steel scrap, chicken eggs, and liquefied petroleum gas also increased. In contrast, the index for fresh fruits and melons fell 13.6 percent. Prices for residential electric power and for plastic resins and materials also decreased.

* * *

Final demand services: The index for final demand services inched up 0.1 percent in December after increasing 0.5 percent in November. About 70 percent of the December advance can be attributed to prices for final demand services less trade, transportation, and warehousing, which rose 0.2 percent. The index for final demand trade services also advanced 0.2 percent. (Trade indexes measure changes in margins received by wholesalers and retailers.) Conversely, prices for final demand transportation and warehousing services declined 0.4 percent.

Most of the December increase in the index for final demand services can be traced to prices for securities brokerage, dealing, investment advice, and related services, which advanced 4.4 percent. The indexes for machinery, equipment, parts, and supplies wholesaling; apparel, footwear, and accessories retailing; food retailing; and health, beauty, and optical goods retailing also moved higher. In contrast, prices for airline passenger services fell 2.4 percent. The indexes for fuels and lubricants retailing, loan services (partial), and apparel wholesaling also decreased.

* * *

In short, in December, the price of gasoline and heating surged, brokerage fees jumped, and everything else was largely in line as airplane tickets dropped while the price of fruits and melons tumbled.


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