Release Explanation: The rate of inflation of manufacturers when purchasing Goods and Services; the rate of Inflation at the factory Gate. Economic impact An increase in the price of raw Goods and services usually gets passed on to the consumer, therefore this is the first stage on Retail Inflation. This can go on to affect CPI, Retail Sales and Consumer Confidence. This is an inflationary report and therefore is a pre-cursor to CPI data.
Trade Desk Thoughts: The Producer Price Index for Finished Goods fell 1.9% in December on a seasonally adjusted basis, the Bureau of Labor Statistics said today. December's decrease followed declines of 2.2% in November and 2.8% in October. The slower rate of decrease in prices was led by the index for energy, which fell 9.3% in December after declining 11.2% in November.
Producer prices ex-food and energy, the core rate, rose 0.2% last month compared with a 0.1% increase in November.
Producer prices fell 0.9% in 2008 compared with an increase of 6.2% in 2007. It was the first annual decline in seven years. The 2008 downturn is mostly attributable to energy prices, which dropped 20.3% after rising 17.8% in 2007. At the same time, core producer prices rose 4.3% in 2008 following a 2.0% gain in 2007.
The key takeaway from today's report is that energy prices fell because demand slowed sharply as the economy contracted, said Matthew Carniol, chief currency strategist at TheLFB-forex.com. If the trend for economic weakness continues as expected, it will heighten the deflationary pressures.
Forex Technical Reaction: The dollar has recently begun moving lower against most of the majors, but has been gaining against the yen.