Sober Look

Hidden story in US PPI increase

Untitled

The US core PPI surprised to the upside yesterday.

Source: Investing.com

Improved pricing power for US firms? Hardly. Did you ever have the feeling of being ripped off at the gas station when oil prices are falling while prices at the pump barely move? Well, it’s not just a feeling.

GS: – The headline PPI rose 0.2% in October (vs. consensus -0.1%). The surprise was entirely due to core prices, which rose 0.4% (vs. consensus +0.1%), while energy prices declined 3.0%. Within the core, the volatile trade services category—which measures retail and wholesale margins—rose 1.5%, adding three-tenths to the core. Drilling down further, a sizable part of the jump in trade services came from a huge 26% month-on-month increase in fuel retail margins (i.e., gasoline stations). While counterintuitive in light of the decline in energy prices on the month, the increase in this category reflects retail prices declining more slowly than wholesale prices. On balance, we would heavily discount this month’s report in light of the volatility in trade services. The core PPI according to the “old methodology”—finished goods less food and energy—increased a more modest 0.1%.

_________________________________________________________________________

SoberLook.com

Sign up for our daily newsletter called the Daily Shot. It’s a quick graphical summary of topics covered here and on Twitter (see overview). Emails are distributed via Freelists.org and are NEVER sold or otherwise shared with anyone.

From our sponsor:

www.SoberLook.com

Decomposing the velocity of money

Untitled

We’ve received some questions about the ongoing declines in the velocity of money in spite of stronger US GDP growth in the past couple of quarters.The velocity of money (as calculated by the Fed) is the ratio of quarterly nominal GDP to the quart…