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On Tuesday, we learned that the consumer price index rose in August, by 0.1%. The reasons were pretty clear: Gas prices are down, yes, but consumers are still paying more for things like medical care, rent and furniture.
On Wednesday, the Labor Department followed up with its producer price index for August. It fell by 0.1%, but overall, the headlines were more or less the same — energy prices are down, while pretty much everything else is getting more expensive.
While most of us could probably tell you what it means when consumer prices are going up, producer prices can be a little in the weeds. What we mean by producers?
“Producers are the businesses and organizations that produce the goods and services that consumers consume,” said George Pearkes, macro strategist at Bespoke Investment Group.
Producer prices are a measure of any cost that goes into making goods and services, he said
“For instance, an advertising agency’s services are going to be included, as are health insurers’ profit margins, as are the cost of steel beams, as are the cost of construction services,” Pearkes said.
That means producer prices reflect costs throughout the production process, whether that’s the price a retailer pays for a product, like a couch, or the price of raw materials that went into making the couch.
“And there you can see each level of production, how things fit together,” said Kathy Bostjancic, chief U.S. economist at Oxford Economics.
Prices have generally been rising at each level of production, she said. But that inflation is starting to slow down in earlier parts of the production process.
“So if we look at raw goods and then also intermediate goods have decelerated more sharply than the finished goods,” she said.
As a result, the producer price index is painting a slightly different picture than Tuesday’s consumer price index, said Chad Moutray, chief economist at the National Association of Manufacturers.
“It’s a little bit more consistent with the larger narrative that pricing pressures, while they remain pretty elevated, have actually started to moderate,” he said.
That’s an encouraging sign for producers, Moutray added, especially since it’s been getting more difficult to keep passing on their higher costs to consumers.
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