Thursday, April 22, 2010

Inflation at the producer level is alive and well

Thanks mainly to rising food and energy prices (in the past six months, food prices are up at a 13% annual rate, as Brian Wesbury points out), producer price inflation rose to 6% in the past year. Core inflation at the producer level remains pretty tame, but I note that the core PPI is up at a 1.9% annual rate in the past three months. It wouldn't be usual if the core PPI measure picked up further in the months to come, since the headline measure has tended to lead the core measure since the 2001 recession. Brian agrees, adding:

... core prices are showing higher inflation deeper into the production process. Core intermediate prices were up 0.7% in March and are up at a 6.3% annual rate in the past six months; core crude prices increased 6.0% in March and are up at a 41.1% annual rate in the past six months. These figures suggest the placid core price measure for finished goods will eventually start going up much faster.


Benjamin Cole said...

Well, this is more telling of future inflation than global commodities prices.

On the other hand, we are seeing price hikes from a recession bottom. A near-death experience bottom. A bottom where global trade fell by 30 percent y-o-y in some months. Where property and equities prices were hacked in half.

Frankly, about a year ago you could bargain for anything. Now we are reflating back to old price levels.

I do not know if "reflation" is a word in econ texts, but maybe it should be.

John said...


I don't know if its an official word either but I have seen it used to describe the Fed's policies. As in, "the fed is 'reflating' real estate prices" or "allowing the banks to 'reflate' their balance sheets'. Don't know if its a gunuine word but it makes sense to me.

Scott Grannis said...

Reflation is definitely a word. It refers to raising prices via expansionary monetary policy. The Fed is purposefully pursuing a reflationary monetary policy.

Benjamin Cole said...


The big question, I contend, is not whether prices are getting up off the canvas but whether we will have sustained inflation after that.

I knew several fellows in house-related crafts--cabinets, build-outs etc--who were pricing to get the job, not make profit. Many went out of business, of course.

I still feel there is just too much competition for any business to raise prices much. Global competition in products and many services.

Retailers everywhere. Very little labor power (despite Grannis' recurring Peronista-nightmare).

The only "rent" I see (to use on old econ word) is extracted by athletes and movie stars. Nobody else has pricing power.

Well, time will tell.

Money supply, to the extent it can be controlled (we have capital-porous borders), is skippered by Bernanke, a lifelong Republican, who follows in the footsteps of Greenspan, a lifelong Republican-libertarian (a cohort of Ayn Rand).

Having dour-faced Republicans in charge of our money supply does not strike as a recipe for high inflation. Why does anybody think Bernanke is going preside over high inflation?

Cato Institute seems to often think money supply is often too tight.

Jay Norman Davis said...


Do you have any thoughts of at what point an upward trend in interest rates when have an impact on owning high income corp debt.

AS always , thank you,


dave said...


"I still feel there is just too much competition for any business to raise prices much. Global competition in products and many services. "

Is there an industry that is more competitive than the supermarket where margins of 1% are common place?

If there is too much competition for businesses to raise prices how can food prices be up 13%?

In the 70's you could walk into the grocery store and find price stickers one on top of the other , with each sticker added the price increased. this during a period of very slow growth .

Inflation is caused by mistakes in monetary policy not by too much growth. If growth was the cause of inflation the inflation of the 70's could not have occurred.



John said...


I think there is something to what you say. I also think policy mistakes happen a lot. The Fed is not clairvoyant. They were slow to recognize the latest housing bust (but did a great job subsequently IMO however).

If one can suspect where the authorities could be making mistakes one can protect oneself or even benefit. It requires assuming some risk but hey, there is also risk in doing nothing.