Tags
baseline effect, consumer inflation, core PPI, Federal Reserve, inflation, Labor Depatment, PPI, Producer Price Index, producer prices, wholesale inflation, wholesale prices, {What's Left of) Our Economy
Sorry to rain on the parade of the optimists, but this morning’s official data on wholesale prices (for November) signal that another month is about to pass with no serious evidence that troublingly high U.S. inflation has peaked.
These wholesale price figures (called the Producer Price Index, or PPI, by the Labor Department, which monitors these trends) represent what businesses charge each other for the inputs they buy to produce the goods and services they sell their final customers. Quite naturally, they typically (though not always) presage more inflation down the road on the consumer front, since these businesses will try to pass on as many of these costs as they can. And as I’ve argued previously, (e.g., here) the multi-decade worst consumer inflation numbers of the last two years or so show that they (accurately) believe they have lots of such pricing power.
The headline PPI sequential increase for November actually did cool – but only fractionally, from 0.31 percent month-to-month in October to 0.30 percent. Moreover, even though it was one of the smaller increases this year, this October result – as was the case for September and August – was revised up. (And they’ll be revised further in next month’s release.)
As with consumer inflation figures, the PPI reports include a “core figure” that leaves out food and energy price developments because they’re supposedly volatile for reasons having nothing to do with the economy’s underlying vulnerability to inflation. (The core PPI also omits a transportation-related category called “trade services.)
These monthly numbers were slightly worse than their headline counterparts. November’s sequential increase of 0.27 percent topped October’s 0.19 percent and again, even though these are among 2022’s weakest readings, the October, September, and August results were all revised up.
The annual figures look better – but only if you forget about the baseline effect. That is, when these numbers are compared with those of the previous year, they make clear that businesses believe they still have plenty of pricing power.
In this vein, November’s annual headline PPI inflation of 7.39 percent was the best such result since the 6.91 percent registered in May, 2021. And it seems to be progress from October’s 8.10 percent (which itself was upwardly revised). But this October’s annual headline PPI increase came off an 8.90 percent rise between the previous Octobers. This November’s annual headline PPI increase comes off a much worse 9.94 percent result between the previous Novembers.
The 4.87 percent annual worsening of core wholesale prices was also the best such result since May, 2021 (when the read was 5.25 percent). It also beat the 5.44 percent annual number for October.
But that October annual core PPI increase (which has also been revised up) came off wholesale inflation of 6.26 percent between October, 2020 and October, 2021. The “comp” for November is a significantly higher 7.03 percent.
Don’t get me wrong. Both wholesale and consumer inflation will come down to acceptable levels at some point (no doubt because of a combination of consumers running out of the mammoth savings built up because of shriveled peak-pandemic spending opportunities and then big government stimulus programs; and the Federal Reserve’s strategy of fighting inflation by slowing economic growth dramatically).
Until then, however, reports of peak inflation will resemble nothing so much as Mark Twain’s supposed description of reports of his death – “greatly exaggerated.”
RealityChek 