Wednesday, February 16, 2011

Continued signs of 3-4% inflation at the producer level

Inflation remains alive and well at the producer level. Headline (total) prices are rising at roughly a 4% annual rate for the past two years, and although the core measures dipped below  1% early last year, it has now risen at a 3.5% annualized pace over the past three months. The very strong performance of virtually all commodity prices is definitely having an impact on the early stages of the production process (prices of crude goods are up 10% in the past year, and intermediate goods are up 6%), and it is reasonable to assume that at least some of this will be passed on to the consumer. For that matter, the last place that "inflation" will show up is in the CPI. We have plenty of warning signs that it is going to happen, and it would seem that the only unknown variable is by how much inflation will rise.


Frozen in the North said...

Rising inflation int he U.S. is now a near certainty as input prices have been rising for some time. Granted Americans are less affected by the rise in grain and other goods, but it still feeds trough eventually.

It is interesting to note that so far PPI has not translated very well into the CPI (as flawed as these indicators are), but it remains with fuel and grain prices up 60% and 30% respectively over the past quarter, it will be interesting to see how well American companies will be able to pass on these price increases to consumers.

Or will they have to absorb some of these price increase via declining margins...

Things certainly are getting intersting

Charles said...

I'm curious about how the PPI can run higher than the CPI consistently for a decade. Could this be technology driven reductions in distribution costs?