Long Term Perspective

After a sluggish period in 2001 and 2002, prices of crude materials and intermediate goods (excluding food and energy prices) began to accelerate in 2003 and through mid-2006, reflecting improvement in manufacturing activity only to slow in late 2006 and early 2007, reflecting a moderation in U.S. economic growth. Strong worldwide demand nudged up inflation late in 2007 and during the first half of 2008 – although swings in oil prices had impact on volatility. During the second half of 2008 and well into 2009, recession in many economies worldwide undercut producer price inflation at this level.  Rates picked up in late 2009 and into early 2011 but have since softened significantly in 2012. 

Short Term Perspective

Excluding food and energy prices, the crude materials index and the intermediate index rebounded in late 2007 and first half of 2008. The rebound was due to stronger global economic growth for the most part and higher energy costs feeding into other goods.  But world-wide recession led to a sharp drop in core PPI inflation during 2008 and 2009.  Economic recovery and higher energy costs boosted rates back up in late 2009 and into 2011.  Strong economic growth in China and other parts of Asia played a key role supporting commodities prices.  But a recent slowing in economic growth undercut inflation in latter 2011 and well into 2012.

For the core crude PPI, the year-ago pace recently peaked at 49.2 percent in April 2010.  It is typical that in recovery for crude prices to accelerate. More recently, this index came in at minus 9.4 percent in June, following minus 3.9 percent the month before.  The core intermediate PPI year-on-year posted at minus 0.5 percent in October, compared to minus 1.1 percent the month before.  Materials for nondurables and durables manufacturing were notably weak.  The core crude PPI in October rose to minus 5.9 from minus 8.8 the prior month.  Nonfood materials were especially soft.