Each month, the US government reports on composite price changes. In case you missed it earlier this week, the US government reported that wholesale prices \u2013 as measured by the Producers Price Index \u2013 fell 0.6% in February (reported by Yahoo! Finance).<\/p>\n
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Part of a procurement professional\u2019s job is to monitor his\/her assigned markets to determine current and future price levels. This is done for a variety of reasons: to benchmark current prices; to determine the best time to enter into long-term, fixed price contracts; and to forecast pricing into the future so that the organization can make appropriate financial decisions.<\/p>\n
So, what can you make of this week\u2019s report?<\/p>\n
Well, before I give you my take, let me walk you through how I\u2019ve personally analyzed this data to arrive at my conclusions. Last March, the PPI bottomed out at 168.1. It is now at 180.9 \u2013 meaning that, in aggregate, commodity prices were nearly 8% higher in February 2010 than they were in March 2009.<\/p>\n
Even if you heeded the advice of Supply Excellence\u2019s Pat Furey in September 2009, your prices would be about 4% lower than they would be if you were just paying market price. Bravo, Pat, for being dead-on in your analysis!<\/p>\n
So, what is going to happen in the future?<\/p>\n
Well, there is no \u201ccrystal ball\u201d or 100% accurate way of predicting future inflation. But some quotes in the Yahoo! Finance article give some expert insight:<\/p>\n
To sum this up: if you didn\u2019t lock in low prices in the last 12 months, you probably missed the boat on achieving some significant cost avoidance. However, with inflation to remain subdued or to reverse, now isn\u2019t exactly the best time to lock in prices, either \u2013 you may be contracting at a price peak, which is the opposite of what you want to do: contract at a price trough. So, taking a watch-and-see approach is probably best at this point, being prepared to lock in pricing if you see signs of another bout of inflation or waiting for another price trough to become available.<\/p>\n
Do you now understand a little bit more about why financial news matters to procurement professionals?<\/p>\n","protected":false},"excerpt":{"rendered":"
Each month, the US government reports on composite price changes. […]<\/p>\n","protected":false},"author":12,"featured_media":4126,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-2828","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-procurement"],"yoast_head":"\n