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July 2008, Vol. 131, No. 7
Producer inflation accelerates in 2007 due to rising prices for energy and foods
Joseph Kowal, Antonio Lombardozzi , Scott Sager, and William Snyders
The Producer Price Index (PPI) for Finished Goods climbed 6.2 percent in 2007, after inching up 1.1 percent in 2006. Finished goods are commodities that are ready for sale to final-demand users, either as durable or nondurable goods for consumers or as capital equipment for business firms. The index for intermediate materials, supplies, and components, reflecting the prices of goods produced at an earlier stage of processing, increased 7.1 percent in 2007, after rising 2.8 percent in 2006. Intermediate goods consist of material and component inputs to manufacturing and construction, as well as supplies for all types of businesses. The index for crude materials for further processing—unprocessed goods and raw materials—jumped 19.8 percent in 2007, after falling 4.7 percent in 2006. The larger advances in 2007 for the finished goods and intermediate goods indexes, as well as the upturn in prices for crude goods, are attributable primarily to a reversal in prices for energy goods, which moved up in 2007, after declining in 2006, and secondarily to prices for foods, which increased at faster rates in 2007 than they had a year earlier. (See table 1.)
Prices for energy goods jumped in 2007, after moving down in 2006. Among crude materials, prices for crude petroleum, which were nearly unchanged in 2006, surged 51.7 percent in 2007, while prices for wellhead natural gas edged down after dropping 26.2 percent in the preceding year. Further along the production path, prices for refined petroleum products and utility electric power moved up more in 2007 than they had a year earlier, while the index for utility natural gas fell less than it had in 2006. Within finished goods, the index for finished energy goods advanced 17.8 percent in 2007, following a 2.0-percent decline a year earlier. Similarly, prices for intermediate energy goods climbed 19.8 percent, after decreasing 3.3 percent in 2006, and the index for crude energy materials rose 16.2 percent in 2007, compared with a 15.7-percent drop a year earlier. (See table 2.)
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