- by New Deal democrat
I just wanted to drop a brief note about this morning’s PPI report. In May headline producer prices rose 1.1% for the month (the second such increase in a row), and on a YoY basis increased 6.5%. Final demand goods prices are up 9.1% YoY, and final demand services up 4.9%:
So at the producer level, there is really no hiding place from price increases.
Meanwhile raw commodity prices 3.5% for the month, and are up 13.1% YoY. The last few monthly increases have been every bit as much as the worst of the post-pandemic inflationary surge:
This is an extreme reading that has been equalled or beaten only 5x in the past 80 years:
Note that in *all* of those cases, consumer inflation peaked at over 5% YoY, and in 4 cases close to or even higher than 10%, vs. 4.2% in the latest consumer inflation reading.
One important difference with the 2022 experience is that this time, shelter is not participating in the consumer inflation advance. But that is of little comfort since, as the below graph of CPI less shelter shows, that metric was higher by over 10% YoY at the 2022 peak:
Finally, I also want to spotlight that sometimes producer prices lead consumer prices, but sometimes they move simultaneously. In fact over the past 80 years, producer prices for goods (the longest extant main PPI statistic) and consumer price spikes YoY have typically peaked within two months of one another, and frequently simultaneously. Here is the historical look:
Faced with a spike in price for inputs, producers can either absorb the increases, pass them on to consumes, or some of each. The regional Fed indexes for the past few months have indicated rampant input price hikes, with much - but not nearly complete - pass-throughs to consumers. That seems to be what we are seeing in the comparison of producer and consumer price spikes so far now. But as pointed out above, it would be unusual if the YoY peak advance in consumer prices stayed below 5% - and that’s without any renewed Iran war escalation.
Of course, while that is “somewhat” good news for consumers, it does mean a hit to the bottom line for producers. And after lower profits tend to come things like abeyances in hiring, and maybe an increase in firing. But we’re not there yet.
