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Industrial Price Index Advances in Positive Territory for Second Straight Week

August 3, 2009
The Journal of Commerce-Economic Cycle Research Institute index of global industrial prices moved deeper into positive territory for the week ending July 31, the second straight weekly advance and a new sign of growing demand in the industry sector, The Journal of Commerce reported.

Based on the daily prices of raw materials used in industrial production, the Industrial Price Index ended the week of July 31, more than 2.1 percentage points higher than the previous week, reaching 88.2532, the highest point for the IPI since October 17, 2008.

The gain marked an 11.9% improvement over the index's average over the previous 52 weeks, the strongest growth the IPI has grown since the week ending August 1, 2008, shortly before the onset of a steep decline in world financial markets.

"The continued advance in both the level and the growth rate of the index tells us that the risk of a double-dip recession or an L-shaped recession is much less than feared," said Lakshman Achuthan, managing director of the Economic Cycle Research Institute, the New York-based economic research firm which puts the index together based on data collected by The Journal of Commerce.

The IPI has fluctuated in the low 80s since early June and moved into positive territory the week ending July 24 by growing 3.3 percentage points to 86.1637. The low point during the economic downturn came the week ending Dec. 19, 2008, when the IPI dipped to 63.8940.

On a year-over-year basis, the index remains far below the 132.2840 recorded a year ago, but the sequential increase suggests growing confidence and competition for raw materials in industrial markets.

The JoC-ECRI Industrial Price Index was created in 1985 by Geoffrey H. Moore, the economist who pioneered the study of business cycles at the National Bureau of Economic Research, where a committee of economists that he established is still the official judge of when the U.S. economy goes into and out of a recession.

The index is based on the prices of 18 industrial commodities that are tracked by the index that is compiled every weekday by The Journal of Commerce and ECRI.

The IPI is not a weighted average, but a pure reflection of prices. It does not include agricultural commodities or precious metals such as gold or silver, but only materials that are used in industrial production, such as nickel, tin, aluminum, plywood, benzene, cotton, burlap, and crude oil.

In addition, half the commodities in the index are not "exchange-traded" commodities, which means their prices are not established on the floors of any of the world's commodity exchanges. This serves as a reality check on the prices of the other half, so the index cannot be skewed if a hedge fund or a speculator tries to manipulate the price of a commodity.