Must-know releases that will impact US debt securities this week

Part 3

Producer and consumer prices: Is inflation finally edging up?


Both the Producer Price Index (or PPI) and the Consumer Price Index (or CPI) are headline inflation numbers issued by the Bureau of Labor Statistics (or BLS). The PPI is due for release on Wednesday, February 19, and the CPI will come out on the following day.

Part 3Enlarge Graph

What is the Consumer Price Index (or CPI)?

The Consumer Price Index measures the change in the average price level of a fixed consumption basket of goods and services. The index shows the change in price levels from the index base period (currently, 1982–1984 represents the base, or 100). Changes in the CPI are commonly called “the rate of inflation.”

The Consumer Price Index (or CPI) for all urban consumers increased 0.3% in December on a seasonally adjusted basis and increased 1.5% year-on-year on an unadjusted basis. Increases in energy and shelter costs were chief contributors to the increase.

What is the Producer Price Index (or PPI)?

The headline PPI measures price change in finished goods, termed “for Final Demand.” Price changes for goods, services, and construction sold to final demand are captured by the headline number.

The PPI for finished goods increased 0.4% in December on a seasonally adjusted basis, led mainly by increases in finished energy goods, which increased 1.6%, mainly due to higher gasoline prices in December. Prices for finished goods declined 0.1% in November and 0.2% in October. On an unadjusted basis, prices for finished goods increased 1.2% in 2013 compared to a 1.4% advance in 2012.

An increase in the PPI and CPI will imply that inflation is increasing, which (other things remaining constant), can mean that demand for goods and services is increasing and the economy is recovering. Higher inflation will also mean higher nominal yields for bonds and lower prices and vice versa.

To read about other indicators that will have a less direct impact on bond markets, move on to Part 4 of this series.

The Realist Discussions