U.S PPI Rose by 0.3% in July – August Report

According to the recent producer price index monthly report, which came out yesterday, the PPI for finished goods rose by 0.3% in July compared with June’s index.

This report serves as an indicator for the developments in the U.S core CPI to be published today, August 15th. This is the sharpest gain in a single month since February 2012. On an annual scale, the PPI rose by 0.5% during the last 12 months

During July the food index increased by 0.5% while the energy index fell by 0.4%. The recent news of the drought in the U.S is probably among the factors pulling the food index up. Further, this could also suggest the drought may continue affecting the food index in the months to follow.

This means that most of the rise in the U.S PPI is attributed to the increase of food prices during last month.

Furthermore, the Producer Price index excluding food and energy rose again by 0.4% during July 2012.

This PPI ex food and energy is estimated to have a lagged negative linear correlation with gold price; i.e. as the PPI increases, gold price tends to decline the next day. On the other hand, the PPI excluding food and energy tends to have a positive linear correlation with silver rate. These relations are mainly via the changes in U.S dollar.  If this relation will hold up in this month’s publication, the news of the U.S PPI ex food and energy rising could adversely affect gold price during today’s trading (assuming all things being equal).

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