U.S PPI Bounced Back by 0.5% in May – June Report

According to the latest producer price index monthly update, which was published yesterday, the PPI for finished goods sharply rose by 0.5% in May compared with April’s index.

This report serves as an indicator for the developments in the U.S CPI to be published next week. This is the first month in three months in which the PPI rose.  Last month, the PPI fell by 0.7%. On an annual scale, the PPI increased by only 1.7% during the past 12 months.

During May, the food index increased by 0.6%; moreover, the energy index sharply rose by 1.3%. Thus, the main reason for the rise in PPI was the gain in energy and food prices.

Further, the Producer Price index excluding food and energy edged up again by 0.1% during May 2013.

This PPI ex food and energy is supposed to have a lagged negative linear relation with gold price; i.e. as the PPI rise, gold price tends to decrease the following day. Conversely, the PPI excluding food and energy tends to have a positive linear relation with the price of silver. These relations are mainly via the changes in U.S dollar.  If this relation will remain stable for this month’s report, this news is likely to have a modest effect on the prices of bullion at the beginning of next week.

During yesterday, the prices of gold and silver rose; the Euro/USD slightly declined; the major stock indexes, such as Dow Jones, NASDAQ and S&P500 slightly fell on Friday.

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