U.S PPI Declined by 0.6% in March – April Report

According to the recent producer price index monthly update, which was published yesterday, the PPI for finished goods changed course and sharply fell by 0.6% in March compared with February’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 this year in which the PPI fell.  Last month, the PPI rose by 0.7%. On an annual scale, the PPI increased by only 1.1% during the past 12 months.

During March, the food index increased by 0.8%; alternatively, the energy index tumbled down by 3.4%. Thus, the main reason for the fall in PPI was the decline in energy prices.

Conversely, the Producer Price index excluding food and energy rose again by 0.2% during March 2013.

This PPI ex food and energy is supposed to have a lagged negative linear correlation with gold price; i.e. as the PPI decline, gold price tends to rise the next day. Conversely, the PPI excluding food and energy tends to have a positive linear correlation with the rate 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 precious metals on the first day of next week.

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

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