Thursday, April 14, 2011

Producer price inflation continues to accelerate


At the producer level, rising inflation is now unmistakable and indisputable. Even excluding food and energy, producer prices have been rising at a 2% annual rate since the beginning of last year, after rising by only 0.9% in 2009. Moreover, core producer prices rose at a 4.2% annualized pace in the first three months of this year.


This chart plots the producer price index on a semi-log scale, in order to highlight the different inflation regimes of the past several decades. Producer price inflation now appears to be accelerating beyond the 3.5% annual pace which prevailed from 2004 through last year, and far beyond the 1.7% annual pace which prevailed for the preceding 20 years. Over the past six months, the PPI is up at an annualized pace of almost 11%; over the past three months, prices have risen at an astounding 13% annualized pace.

These charts are an early-morning wakeup call that continues to be ignored by groggy Fed chairmen.

6 comments:

Benjamin said...

I don't think the Libyan revolt and NYMEX zaniness can be laid at the feet of Ben Bernanke, a man deeply schooled in both the American Great Depression and the ongoing Japan Perma-Gloom.

Corn and cotton are also in odd peaks (although if you want to bash to USA federal rural-subsidy ethanol program, I am right there with you--it is much more a cause of corn inflation than Bernanke).

Further, cutting back on the money supply in face of suddenly higher oil prices might plunge the USA back into recession--a deep recession that we are just now clawing out of.

Can't say I am worried about inflation--I am worried about economic growth, now decelerating below 2 percent (first quarter figs).

Please Mr. Bernanke, put the the pedal to the metal.

Dr William J McKibbin said...

Commodities inflation is not the same as wage inflation -- the value of the dollar in the global marketplace is collapsing right before our eyes -- I would add that Americans should not expect the Federal Reserve or the Federal government to clearly signal that an erosion of the dollar is underway -- just as Japan has "managed" its information releases regarding the true extent of the radiation dangers in Japan, the US will likewise "manage" its disclosures regarding what is happening to the dollar -- in my view, the dollar is already lost and any plan to recover the dollar's value will take 25-years to implement -- inflation is inbound, and the inflation will be driven by commodities prices -- when gasoline hits $10/gal, prices will rise, even while home prices decline, wages stagnate, and unemployment dogs the nation's spirit -- the winners of the coming inflation will those with certified skills, those who own dividend and/or rent paying equities, and those who own residences outright -- the losers will be those with ordinary skills (master's degrees are ordinary), ordinary credit card debt (of any kind), ordinary houses (that no one will buy), ordinary health (as in being depressed and/or overweight), ordinary marriages (as in getting divorced), and ordinary savings (as in none) -- here we go...

Public Library said...

Dr Bill,

Well said my friend. That covers many Americans these days. I hope people wake up on all of those fronts.

Benjamin said...

"Dr." McKibben:

Please review charts of the dollar's exchange rate. It is back were it was decades ago. The dollar was here in 1980 and 1997. We did not die.

How is this a collapse? You sound like another of the Chicken Littles running around the econo-landscape.

I expect the lower dollar to keep doing what it is doing: Surge our exports, now one of the growth engines of the US economy. I like this, I like prosperity. Give to me more prosperity, especially from exports.

I know of many nations that exported their way to prosperity. I know of no nation that imported its way to prosperity.

The problem is that the dollar, as the international reserve currency, has been been overvalued since Bretton Woods.

Dr William J McKibbin said...

Hi Benjamin, I agree that a lower dollar makes exporting easier for the US -- of course, the goods that are in demand worldwide include oil (which we import), celluar telephones (which we import because all cellular telephones are manufactured outside the US), laptop computers (which again, are not manufactured in the US), military weaponry (which the US should quit exporting), etc. What I am suggesting is that we do not have much to offer the world right now in terms of high-demand exports -- our future leading exports will more likely include gold and silver bullion, common and preferred stock in our nation's top companies, our best commerical real estate, shore-front land, and perhaps our daughters -- foreigners with cash will be eager to come to America to buy us out -- again, the winners in America will be those with dividend and rent-paying equities, high-demand skills, and those with stable cosmopolitan lifestyles...

Benjamin said...

Dr. M:

Well, if I can get my daughter married off, then I will really, really believe in a weak dollar. Holy Moly, the advantages just keep growing. Maybe they will take my wife too....hmm, just gets better and better.....