Energy prices contribute to falling producer price index
By the OGJ Online Staff
HOUSTON, Nov. 9 -- A decline in natural gas and petroleum prices helped fuel the decline in the producer price index for October, the US Department of Labor said Friday.
Natural gas prices fell 27.5% in October following a 22.8% decline in September. The petroleum index also fell 19.6% for October after a less than 1% gain in September. Prices for raw energy products such as oil, gas, and coal, fell by 19.2%, much more than the 10.7% decline in September. Natural gas posted its sixth monthly decline.
Price declines for energy goods led the decline in the producer price index (PPI), a key economic indicator of inflation or deflation in the economy, the Labor Department said. The PPI fell 1.6% in October after 2 months of slight increases of less than 0.5%.
"The weak PPI is a reflection of a weak economy," said Bill Gilmer, chief economist for the Houston branch of the Federal Reserve Bank of Dallas. "There is no inflation in the pipeline because there is a lot of idle capacity."
A price index composed of finished energy products such as heating oil, gasoline, diesel fuel, and residential natural gas fell 7.7% in October. One year ago the finished energy products index increased 1.5%. Gasoline prices fell a steep 21.2%, the largest monthly decline since a 22.2% decline in March 1986.
The indexes for home heating oil, liquefied petroleum gas, and diesel fuel also turned down in October. Prices for residential natural gas decreased at a faster rate than in September, the Labor Department said.
However, prices for residential electricity started to increase in October. Those prices increased about 0.4% after a decline of about the same amount in September.
The PPI for all finished goods fell 0.8% rate, compared to an increase of 3.6% for the comparable period last year, reflecting the volatility in prices and the abrupt change in direction of the economy. The PPI for all raw materials contributing to the index or crude goods fell 35.2%, compared to a 35.5% increase for 2000.
The Fed's Gilmer said he doesn't think that there is a natural gas "bubble" developing similar to the one in the early 1990s. Prices are down because of poor demand, he said. He doesn't expect producers to cut back personnel. "A lack of demand for gas can cure itself in 6 months," Gilmer said.