That’s how the month-to-month PPI readings are, full of dramatic zigzags and revisions.

By Wolf Richter for WOLF STREET.

A month ago, when the Producer Price Index Final Demand for services had massively spiked month-to-month, I mused: “Just by looking at the month-to-month blue lines in these charts, how much they zigzag, I expect further zigzags, big ones too. After a huge spike, we’ve often seen a much smaller increase or even a negative reading, and vice versa.” And that’s sort of what happened for August, because that’s just how the month-to-month PPI readings are, full of dramatic zigzags and revisions.

The July explosion of the Final Demand Services PPI of +1.08% from June (+13.8% annualized) was revised down dramatically today to a still substantial increase of +0.61% (+9.2% annualized), according to data from the Bureau of Labor Statistics today.

For August, the Services PPI declined by 0.30% (-2.9% annualized) month-to-month (blue in the chart). The six-month average, which includes all the revisions, decelerated to +1.4% annualized (red).

The month-to-month drop in the services PPI was driven by the 1.7% plunge (-22.4% annualized) in trade services.

But transportation and warehouse services jumped by 0.9% (+11.4% annualized). And the index for all other services rose by 0.3% (+3.7% annualized).

The services PPI dominates the “core” PPI Final Demand (which excludes food and energy) and the overall PPI Final Demand, and caused both of them to dip month-to-month.

Year-over-year, the core services PPI rose by 2.9%, undoing most of the acceleration in July.

The PPI for “Finished Core Goods” accelerated in August to +0.31% (+3.8% annualized), thereby undoing the cooling in July. This measure excludes food and energy goods.

The six-month average rose 3.4% annualized in August, same as in July. Both were the worst readings since June 2023.

The tariffs paid by companies show up here indirectly. The PPI does not track import prices. It tracks prices that companies charge each other and thereby does not directly track the costs of tariffs that companies are paying on imported goods. But by tracking prices that companies charge each other, it indirectly tracks how companies eat the tariffs or pass them to other companies, and that’s where the tariffs have been ricocheting around, as companies are having trouble passing them on to consumer prices.

Year-over-year, the PPI for finished core goods accelerated slightly to 2.84%, the worst since June 2023.

“Core PPI Final Demand, which includes all goods and services except food and energy, is dominated by the services PPI. So like the services PPI, the spike in July was revised down (from +0.92% to +0.65%).

August dipped by 0.12% (-1.4% annualized) from July. The six-month average decelerated to +1.9%.

On a year-over-year basis, the core PPI decelerated to +2.8%:

Overall PPI Final Demand was also revised down for July (to +0.70% from +0.94%). And for August, it declined by 0.12% (-1.4% annualized).

Food prices inched up 0.1% month-to-month, but energy prices fell by 0.4%.

The six-month average decelerated to +1.1%.

Year-over-year, the PPI Final Demand accelerated to 2.6%. June 2023 marked the low point at near 0%. Since then, in its zigzag manner, the trend has been higher.

What I expect.

So, just by looking at the month-to-month blue zig-zag lines in these charts, I expect a reversal in a month or two, with a significant spike in the services PPI and possibly an upward revision of the August decline (to less of a decline).

Last fall was full of upward revisions, to where much of the acceleration of the PPI at the time came in the revisions, not in the original data releases, which were relatively benign. During this episode last fall, I started keeping the original data, rather than overwriting it, because the revisions had such a dramatic effect.

 

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