Tue March 20, 2018

February’s headline producer price index (PPI), which measures the change in prices at the wholesale or producer level, increased 0.2 percent in February according to the latest Bureau of Labor Statistics (BLS) report. Core PPI, however, advanced higher than headline at 0.4 percent. From February last year, headline PPI and core PPI rose 2.8 percent and 2.7 percent, respectively.

The table below summarizes the elements directly related to the plastics industry. It shows some monthly increases in February were moderate, not exceeding one percent, such as plastic construction products. Other key items tracked by BLS declined from January to February. Machinery and equipment wholesaling prices, although not exclusive to plastics machinery, fell 1.7 percent month-to-month.

From a year ago in February, the PPI, at least as it relates directly to the plastic industry, increased. On the services side, plastic products wholesaling advanced the most at 7.7 percent. This was followed by plastic resins and materials at 5.7 percent on the goods side. However, the uptick in prices in these groups in February was less than in January on a year-over-year basis—plastic products wholesaling was up 13.2 percent and plastic resin and materials were up 8.2 percent.

What are the key takeaways from the February inflation numbers? While monthly data are characteristically noisy, the PPI numbers—particularly the elements related to the plastics industry—suggest that upward price movements, which are expected when the economy is expanding, will continue to vary due to basic demand and supply functions. A dramatic increase in wholesale prices would be symptomatic of an economy that is overheating—growing too fast—or an economy that is experiencing a negative supply shock—such as shortage of raw materials due to supply disruptions of imported materials for production because of excessive import tariffs. Neither of these scenarios currently describe the U.S. plastics industry. Whether or not inflation in producer prices will accelerate should be more ascertainable in the mid to later part of the year. For now, U.S. economic fundamentals are stable and that includes aggregate price levels on the producer side.