April 11 2024

The Producer Price Index for final demand  includes producer prices for goods, as well as prices for construction, services, government purchases, and exports and covers over 75% of domestic production.

Producer prices for final demand roe 0.2% in March after having jumped 0.6% in February.  In the past year the PPI has risen 2.1%.  After a big slowdown in producer prices last year the PPI has risen slightly in the first three of  months of 2024.

Excluding the volatile food and energy categories, final demand prices rose 0.2% in March compared to 0.3% in February.  Over the past 12 months this index has risen 2.4%.  Like the overall index, following a long slide in 2022 prices have begun to rise somewhat in the early part of 2024.

We have seen  relatively high inflation because of surplus liquidity in the economy. The cumulative effect of monthly gains in the money supply consistently in excess of the 6.0% M-2 target from March 2020 until March 2022 pushed M-2 almost $4.0 trillion above target.  M-2 began to decline in April of 2022 but is still $0.8 trillion above where it should be.  It appears that the removal of $3.2 trillion of surplus liquidity is helping to bring inflation back down toward the Fed’s target.  If that surplus liquidity continues to shrink we should look for all measures of inflation — including the CPI and the PCE core rate of inflation — to move closer and closer to the Fed’s target.

The overall PPI index can be split apart between goods prices and prices for services.

The PPI for final demand of goods fell 0.1% in March after having surged by 1.2% in February.   Excluding the volatile food and energy categories the PPI for goods rose 0.1% in March after having risen 0.3% in both January and February.  This core goods sector inflation index has risen 1.4% in the past year.

Within the goods sector, food prices rose 0.8% in March after having jumped 1.1% in February after having declined 0.3% in January. Typically, this is a volatile series.  It increases sharply for a few months and then drops back a few months later.  In the past year food prices have risen 1.0%.

Energy prices fell 1.6% in March after having surged by 4.1% in February after  having declined 1.1% in January.   It, too, is a volatile series.  In the past year energy prices have declined 1.0%.  This drop reflects the return to a more normal level for energy prices following the dramatic runup that occured at the beginning of the Ukraine/Russia war.   Having said that prices seem to have increased slightly in the first couple of months of this year.

Prices of services rose 0.3% in both February and March after having climbed 0.6% in January.  In the past year prices of services have risen 2.8%.  Ex transportation and warehousing, service sector prices have climbed 4.2%.

One concern in recent months is that higher shipping costs might filter into these numbers given the drought curtailing shipping through the Panama Canal, and the attacks on merchant ships in the Red Sea.  These prices have risen in each of the first four months of the year a total of 8.0%.  The deep water shipping category of the transportation component has risen 6.0% in the past year.

Because the PPI measures the cost of materials for manufacturers, it is frequently believed to be a leading indicator of what might happen to consumer prices at a somewhat later date.   However, that connection is very loose.  It is important to remember that labor costs represent about two-thirds of the price of a product while materials account for the remaining one-third.  Those labor costs are better captured in the CPI.  Also, the CPI is being inflated by the shelter component, led by rents but also automobile insurance and car repairs..

The core CPI  is expected to increase 3.5% in 2024.  It is not expected to return to the Fed’s 2.0% target pace until 2026..

Stephen Slifer


Charleston, SC