Wholesale Inflation Report Update: December 2022

Key Takeaways

  • Wholesale inflation is tracked in the U.S. using the Producer Price Index (PPI).
  • In the latest report, final demand for goods rose 0.3% for the month and 7.4% year-over-year.
  • Inflation is still rising, so more interest rate hikes are expected.

Many important economic factors help us understand the health of the economy. One of these factors is wholesale inflation.

The U.S. measures wholesale inflation differently than in other countries since the Bureau of Labor Statistics made changes to get a more accurate number. Here is what you need to know about wholesale inflation and where it stands based on the latest report.

What Is the Wholesale Price Index?

The Wholesale Price Index (WPI) tracks the change in the overall price of goods before their sale at retail. This index looks at the wholesale pricing of goods produced across all industries and totals the dollar amounts to compare against the previous month’s final numbers.

It also tracks year-over-year changes. The difference between the months is expressed as a percentage increase or decrease.

The U.S. Bureau of Labor Statistics (BLS) tracks the WPI, or Producer Price Index (PPI) as it’s called in the U.S., and reports the latest findings every month.

Wholesale Price Index vs. Producer Price Index

The Wholesale Price Index is used as an indicator of the wholesale cost of all goods produced by industries in that country. However, the U.S. uses the Producer Price Index since the federal government never tracked price changes at the wholesale level.

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Instead, the U.S. focuses on the prices charged by producers to buyers and has done so for over 120 years. That said, the prices charged by producers are not necessarily accurate wholesale pricing.

Before 1978, the BLS called its index the Wholesale Price Index but changed it to the Producer Price Index in 1978. It also changed to a method that divided goods into a production stage.

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In other words, the Producer Price Index tracks goods at each stage of their existence, known as an intermediate good. An intermediate good is an ingredient, component, or finished good.

This tracking considers that many goods can be used as a finished product or as part of the production of another finished good.

The main reason the BLS does not track wholesale pricing is to reduce the potential for double counting of a good. This results in more accurate numbers reflecting the previous month’s output from all industries.

Current Wholesale Price Index report analysis

The Bureau of Labor Statistics puts out two sets of numbers. This includes one with demand for final goods, such as food, energy, and trade services, and one that doesn’t.

In November 2022, the BLS found that the final demand for goods increased by 0.3%, and the year-over-year final demand increased to 7.4% for food, energy, and trades. Removing food, trade, and energy resulted in a 4.9% increase.

The index for services increased 0.4% in November, and trade services rose 0.7%.

Prices for dealing, investment advice, securities brokerage, and related services drove a third of the November increase in final demand.

Indexes for machinery and vehicle wholesaling, retailing, portfolio management, loan services, fuels and lubricants, and long-distance trucking also increased. In contrast, prices for passenger transport fell 5.6%, and the final demand for energy fell 3.3%.

When the wholesale inflation report was released, the stock market fell. While a lower report is a sign of news that inflation may be slowing, it is not declining as the market had hoped after the many interest rate hikes from the Federal Reserve.

Why Wholesale Inflation is important

Two main price reports track inflation. The Producer Price Index analyzes inflation from the manufacturing side, and the Consumer Price Index (CPI) tracks inflation from the retail side. Both are critical when understanding how inflation impacts the economy.

With the PPI, you can see real growth output when adjusting for inflation. This report hints at what the Gross Domestic Product is for the nation. As a result, it can help foreshadow a recession.

The CPI, however, allows you to see the changes in the cost of living.

When both are taken into account, you can see how inflation is or isn’t slowing the economy. You can also see the impact of both inflation and a slowdown on the prices of goods and services.

Bottom Line

Wholesale inflation is an important metric when understanding the economy’s health. With the latest report still showing an increase in inflation, the Federal Reserve will likely continue to raise interest rates.

The good news is that some industries are beginning to show signs that inflation is easing. If the trend continues, other industries may soon follow suit.

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