Daily Spotlight

Inflation Soaring at Producer Level

Pricing pressures are starting to pick up -- primarily at the producer level -- and it should not be too long before more mainstream measures of inflation start to tick higher as well. Even so, we don't think the U.S. Federal Reserve is too worried, as Chairman Powell has said that the central bank is willing to let inflation rise above its 2% target in exchange for a continued decline in unemployment. We track 14 inflation measures on a monthly basis. On average, they are indicating that prices are rising at a 6.2% rate, ahead of last month's 3.8% reading. But drilling down to core inflation (which we obtain by averaging Core CPI, market-based PCE Ex-Food & Energy and the 10-year TIPs Break-even Interest Rate), our reading is 1.8%, only slightly above last month's reading of 1.7%. The big increases in recent months have come at the producer level, as the PPI for intermediate unprocessed goods, for example, is now 42% and the PPI for intermediate processed goods is 13%. Much of this price activity is driven by the recent recovery in commodity prices, including oil. The Fed's inflation forecasts call for a core inflation reading of 2.2% in 2021 and 2.0% in 2022. ...  rising at a 6.2% rate, ahead of last month's 3.8% reading. But drilling down to core inflation (which we obtain by averaging Core CPI, market-based PCE Ex-Food & Energy and the 10-year TIPs Break-even Interest Rate), our reading is 1.8%, only slightly above last month's reading of 1.7%. The big increases in recent months have come at the producer level, as the PPI for intermediate unprocessed goods, for example, is now 42% and the PPI for intermediate processed goods is 13%. Much of this price activity is driven by the recent recovery in commodity prices, including oil. The Fed's inflation forecasts call for a core inflation reading of 2.2% in 2021 and 2.0% in 2022.   more

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