Fasten your seatbelts, because inflation’s still going to be a bumpy ride for the next few months. Despite repeated insistence from the White House that we’ve seen the worst of inflation, the producer-price index rose at its fastest level in three months in June. Final-demand year-on-year PPI inflation hit near a new record at 11.6% as well:
The Producer Price Index for final demand increased 1.1 percent in June, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed advances of 0.9 percent in May and 0.4 percent in April. (See table A.) On an unadjusted basis, final demand prices moved up 11.3 percent for the 12 months ended in June, the largest increase since a record 11.6-percent jump in March 2022.
In June, three-fourths of the advance in the index for final demand was due to a 2.4-percent rise in prices for final demand goods. The index for final demand services increased 0.4 percent.
Prices for final demand less foods, energy, and trade services moved up 0.3 percent in June after advancing 0.4 percent in both May and April. For the 12 months ended in June, the index for final demand less foods, energy, and trade services rose 6.4 percent.
So much for Peak Inflation. Yesterday, the Wall Street Journal reported that voices “on the street” were claiming that we’d seen the worst of it, despite the fact that the CPI number had hit a new record:
The inflation report cemented expectations that Federal Reserve policy makers will raise their target range on overnight rates by three-quarters of a percentage point when they meet in two weeks. That shifts investors’ focus to what might happen at the Fed’s subsequent policy-setting meeting in late September. By then, the picture could look different, as prices for many of the things that pushed inflation higher have lately shown signs of turning over.
Start with gasoline. The average price of a gallon of regular in June was $4.93, according to the Energy Information Administration, up from $4.44 in May. But pump prices have been falling, with regular fetching $4.65 as of Monday. And to judge by the decline in gasoline-futures prices since last month, further price declines are probably coming.
Prices for a variety of other inflation drivers have also been falling. The S&P GSCI agriculture index, which includes crops such as corn and cocoa, has fallen by a quarter since its May peak, while the industrial-metals index has fallen by a third. Wholesale used-vehicle prices slipped in June from May, according to Manheim, which should lead to lower prices on dealer lots.
Meanwhile, excess inventories are leading retailers such as Walmart and Target to put more items on sale. For many of the goods that Americans loaded up on since the pandemic struck, such as appliances and furniture, there should be markedly less inflation, or outright price declines, in the months ahead.
That won’t happen when wholesale prices are still shooting through the roof, especially as that pace picks up speed again. Let’s look at the charts to see the trends:
Nothing in these charts suggest any downward motion on wholesale prices, especially on goods. Neither is there much indication that recent energy cost changes will help. Year-on-year final demand on energy is up 54.4% and was up 10.0% for June alone. Even without food and energy, so-called “core PPI” went up 9.1% year-on-year, and 0.5% month-on-month.
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That means these higher prices will continue to push up retail prices to consumers as the goods in the present distribution chain work their way to the market. That in itself will keep CPI inflation higher, especially if fuel prices rebound in the near term, as they usually do after a post-Independence Day lull in demand.
As I’m writing this analysis, Twitter is down, so I don’t have the spot reaction to the PPI numbers to share at the moment. Instead, let’s note that Janet Yellen was already getting mighty nervous over yesterday’s CPI numbers and what it might prompt the Fed to do:
U.S. Treasury Secretary Janet Yellen has warned that inflation in the U.S. is “unacceptably high” and said bringing down rising prices will be Washington’s “top priority.”
Data released Wednesday showed U.S. consumer inflation rose to 9.1%, the highest level since 1981.
“We’re first and foremost supportive of the Fed’s efforts; what they deem to be necessary to get inflation under control,” she said at a news conference in Bali ahead of the Group of 20 finance ministers’ meeting.
“Beyond that, we are taking our own steps which we believe will be supportive in the short term to get inflation down — particularly what we’re doing on energy prices and the Strategic Petroleum Reserve.”
Yellen wants to push a “price cap” on Russian oil that would only contribute to a global supply shortage. Rather than impose artificial price caps, the US could incentivize a massive expansion of domestic production to flood supply into the market and force prices down across the board. That would not only provide some relief to American supply, it would vastly strengthen our strategic hand against Russia and Iran.
Meanwhile, the WSJ notes that this is the seventh straight months for double-digit jumps in the PPI:
U.S. suppliers’ price increases picked up in June and remained near historic highs as pressure from high energy prices persisted.
The Labor Department on Thursday said the producer-price index, which generally reflects supply conditions in the economy, increased to 11.3% on a 12-month basis in June. That marked its seventh consecutive double-digit gain, and compared with a revised 10.9% increase in May, and signaled upward price pressures continue to move through the economy. …
On a one-month basis, producer prices increased a seasonally adjusted 1.1% in June from the prior month, marking an acceleration from the revised 0.9% gain in May. June’s rate of increase was higher than the average monthly gain of 0.2% in the two years before the pandemic.
Don’t forget that inflation is a compounding phenomenon. We are 11.3% higher than the PPI reading in June 2021, which itself was already going up too high. In both year-on-year and month-on-month measures, we are increasing on previous increases, not a baseline. Even a 0.0% reading on an inflation measure at this point will not represent a cure, but merely a peak of inflation. And if 0% represents a peak, well … you can guess what 11.3% represents. We are very, very, very far from a “peak” inflation point.
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