- by New Deal democrat
In It appears that both producer and consumer inflation are going to continue at elevated levels, despite the actual *de*flation in June.
Here’s a look at the average of the New York and Philadelphia Fed’s prices paid (blue) and prices received (orange) diffusion manufacturing indexes:
In July, the average for prices paid decelerated from 57.1 to 53.1, while that for prices received accelerated from 26.1 to 29.3. Keeping in mind that 0.0 is the equilibrium point, these are both very elevated numbers, although - like last week’s PPI vs. CPI numbers - they indicate that producers are not able to pass on all of their upstream price increases, meaning pressure on profit margins.
Here’s what the prices paid average (/4 for scale) looks like compared with commodity prices YoY:
While the correlation isn’t perfect, especially last year, it is usually pretty close, e.g., an increase in the prices paid average correlates very well with a YoY% increase in commodity inputs.
Similarly, the prices paid average (/8 for scale) correlates well with the YoY% change in the final demand prices for producer goods (yellow) and in a more muted way with consumer prices YoY (violet):
That translates into a possible 0.5% advance in producer prices for July, and a 0.2% or 0.3% advance in consumer prices, in order to maintain the YoY averages of 6.7% and 3.5% respectively.
If both the prices paid and prices received components of the regional Fed reports suggest that elevated inflation levels continue to be likely, the collapse of the fragile “cease fire” in the Persian Gulf region has caused oil prices to increase to over $80/barrel again, and more importantly, average gas prices at the pump to go back over $4/gallon:
I do not see any real abating of inflation at any point in the immediate future, and further, it will put more pressure on the Fed to defy the Administration’s wishes, and raise interest rates.
