Producer Prices Are Rising at 5.4% a Year and Consumer Prices at 3.4%. Fuel Retailers Are Absorbing Part of the Difference.

The Bureau of Labor Statistics published its producer price index for August on September 10 and its consumer price index for August on September 11. Read together, the two releases show producer prices rising at roughly twice the annual pace of consumer prices - 5.4% against 3.4% - and a third figure inside the producer data that suggests where some of the difference is going.

Two indexes, two different questions

The PPI measures prices received by domestic producers for their output. The CPI measures prices paid by urban consumers for a basket of goods and services. They cover different things: the PPI includes business-to-business transactions and excludes imports at the consumer stage, while the CPI includes imported goods, consumer services and owners' equivalent rent. The two are not two measurements of the same quantity, and a gap between them is normal. The size of the current gap is what makes it worth reading closely.

The energy wedge

Final demand goods rose 1.1% in August at the producer level, against 0.1% for final demand services. Within goods, the energy index rose 4.2%.

• PPI final demand energy: +4.2% in the month. CPI energy: +2.1%.
• PPI diesel fuel: +24.1% in the month.
• CPI gasoline: +3.9% in the month, +27.4% over twelve months.
• PPI residential electric power: -0.5% in the month. CPI electricity: -0.2%.

The electricity lines move together. The motor-fuel lines do not: a 24.1% monthly jump in wholesale diesel has no counterpart of that size anywhere in the consumer index.

Where part of the difference is going

The PPI contains a category most readers never encounter: trade services. It does not measure the price of goods sold at wholesale or retail. It measures the margin - the difference between what a distributor or retailer pays for something and what it charges. Final demand trade services fell 0.2% in August, and one line inside it fell much further.

Margins for fuels and lubricants retailing decreased 11.3 percent.

That is the arithmetic of a retailer whose wholesale cost rose faster than its pump price. It is a direct, measured figure rather than an inference, and it is the clearest single piece of evidence in either release that part of the producer-side energy increase did not reach consumers in August.

Not all of it was absorbed. Final demand transportation and warehousing services rose 2.3% in the month, which is the cost of moving goods rising rather than being absorbed.

The core comparison

Both agencies publish a measure that strips out the volatile categories. The PPI version excludes foods, energy and trade services, and rose 4.7% over the twelve months to August. The CPI version excludes food and energy, and rose 2.4%. The two core measures are not constructed the same way - the PPI version also removes margins - but the direction of the gap matches the headline comparison rather than contradicting it.

This article compares two statistical releases and is not investment advice.