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Yesterday, I wrote that we’ll know if President Biden’s optimism about the direction of multi-decade high consumer inflation is well founded when today’s data about producer prices come in. Now they’ve been released, and Mr. Biden or one of his aides might want to consider walking that one back. Because the new producer price index results (PPI) were as bad as those consumer price index (CPI) figures the President tried to explain away.

According to Mr. Biden, yesterday’s worrisome CPI release (taking the story up through June) is “out-of-date.” The reason? Oil prices, which have done so much to spur the recent “headline” (economy-wide) inflation, have come down this month. He added that “core inflation” (which strips out food and energy prices supposedly because they’re volatile for reasons having little to do with the economy’s underlying vulnerability to inflation) was subsiding, too.

As I noted, the PPI results would matter so crucially because they measure what businesses pay for the goods and services they need to create the output they try to sell to their customers. And if customer demand is strong enough (which yesterday’s numbers made clear is the case), these companies can and will pass along any higher prices they pay. So as long as producer price (or wholesale) inflation is bad, it’s a safe bet that succeeding consumer price (or retail) inflation will follow suit for a while.

And that’s exactly the message being sent by the new PPI report – especially when you take into account the baseline effect (which you always should).

The headline annual June PPI increase of 11.19 percent was the highest since March’s 11.57 percent. And although it does include those food and energy prices, since energy in particular is a major input for so many of the U.S. businesses that turn out so much of what consumers buy, it’s likely that these higher costs will wind up keeping both the headline and the core CPI numbers troublingly high next month – and possibly push them higher.

June’s core wholesale inflation read looks considerably better. Indeed, at 6.33 percent, it was the lowest since last October’s 6.26 percent. But here’s where the baseline effect comes in. The baseline figure for the October, 2021 annual PPI increase was the October, 2019-20 rise of 0.90 percent. In othe words, back then, wholesale inflation was super-low, thanks mainly to continuing worries about the course of the CCP Virus and its impact on the overall economy and therefore on consume spending.

And as known by RealityChek regulars, because that baseline annual increase was so unusually low, the subsequent return to some version of economic normality was bound to produce an unusually high annual increase the following year.

But check out the baseline for last month: It was 5.84 percent – more than six times higher than that of October, 2020. Therefore, a 6.33 percent yearly wholesale inflation increase coming off that baseline is powerful evidence that major producer and consumer price increases are going to remain facts of American economic life for the time being – specifically, as long as demand holds up.

Sooner or later, President Biden will be right. Unfortunately, as I’ve written, that’s sure to be because either the Federal Reserve will tighten credit conditions so much that demand weakens enough to produce a recession, because ever higher prices weaken demand substantially on their own, or some combination of the two. If that happens while he’s still President, somehow I don’t think Mr. Biden will be saying “I told you so.”