Energy Prices Push Consumer Prices Up, NY Manufacturing Improves

Yesterday we saw that rising energy prices were pushing up costs for producers, but today’s Consumer Price Index shows that producers are squeezing their profit margins rather than passing those costs on to consumers.

The CPI increased 0.7% in June, in line with expectations, after rising 0.1% in May. As predicted, the monthly gain was largely caused by gas prices, which bounced up 17.3% in the month, accounting for 80% of the price increase.

Yesterday’s PPI index, by contrast, jumped 1.8% in June.

Core CPI, which excludes volatile energy and food prices, rose 0.2% in the month after a 0.1% advance in May. The rises were broad based, with prices of new and used vehicles, recreation, and apparel all advancing at least 0.5%. Year over year, the CPI is down 1.4%.

Released at the same time was the first regional manufacturing report this month. The New York Fed’s Empire State survey showed conditions nearly stabilizing with a score of -0.6, the best reading since April 2008.

Just a few months ago, in March, the index has a score of -38.7.

New Orders moved into growth mode, climbing from -8.2 in June to +5.9 this month, and setting the stage for growth in production next month. Shipments also rebounded from -4.8 to +11.0, the highest reading since January 2008. Employment, however, continues to stagger with a -20.1 reading, only a marginal improvement from -21.8 in June.

Producer costs moved up for the first since November, while prices received continued deflating for their seventh straight month.

“Future indexes continued to be relatively optimistic about the six-month outlook, but were somewhat less buoyant than in June,” the report said. “The capital spending index fell several points, but remained above zero.”

TD strategist Ian Pollick said the details demonstrated “broad based strength,” and he noted that the 3- and 6-month trends were both encouraging for the region. 

“While conditions are likely to remain subdued as aggregate demand corrects, the strength seen in this report is a sign that conditions are slowly beginning to improve,” he added.

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