Producer Price Inflation Sets New Record at 10 Percent, No Relief in Sight (More Trouble)

The “Producer Price Index” (PPI) is essentially the tracking of wholesale prices at three stages: Origination (commodity), Intermediate (processing), and then Final (to wholesale). Today, the Bureau of Labor and Statistics (BLS) released February price data [Available Here] showing a dramatic 10.0% increase year-over-year in Final Demand products at the wholesale level. This is the highest rate of inflation in the PPI ever recorded.

The single month increase in wholesale prices of 2.4% was driven by inflation built into the supply chain at every level that shows up in the final wholesale price. Those price increases then get passed along to consumers along with the additional costs for warehousing, transportation and delivery. I modified Table-A to take out some of the noise.

The January, December and November data was also revised significantly upward, and a sketchy footnote is included in the data. “ Some of the figures … in this release may differ from those previously reported because data for October 2021 through January 2022 have been revised to reflect the availability of late reports and corrections .” Remember that temporary drop in December, yeah, that’s wiped out now.

The reason the total demand inflation number is 0.8% is only because inflation in the service sector is lower than inflation in the goods sector. Two reasons: (1) energy costs embed in goods first before services; and (2) when inflation on goods squeezes budgeted consumers, less services are demanded.

Unfortunately, there is nothing upstream in the supply chain and manufacturing pipeline to suggest that higher prices at the retail level are not coming. The price of raw materials, and the wholesale energy costs to process those materials into finished goods, are still rising. Factually, the recent massive increase in fuel and transportation cost is not included in this data.

Courtesy ~ CTH Sundance

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