The market scarcely needed any additional reason to fret over imminent inflation. Or, if you’re loving the current conjuncture, I guess you’re inclined to spin inflationary signals as positive to the extent they bolster the feel-good “reflation” narrative.
To be sure, actual, measured inflation (where that just means the measures used by policymakers) are still subdued. But “evidence” from PMIs of late points to mounting price pressures as a result of, among other things, supply chain bottlenecks and various manifestations of pandemic disruptions.
On Tuesday, Empire manufacturing added to that growing body of evidence. The prices paid gauge rose to 57.8 in February from 45.5. That’s the highest since 2011.
“The prices paid index rose twelve points to 57.8, a level last reached in 2011, pointing to sharp input price increases,” the color accompanying the survey said. “The prices received index climbed eight points to 23.4, its highest level in two years, pointing to a pickup in selling price increases.”
Again, this is consistent with ISM and IHS Markit’s commentary on price pressures, and one question will continue to be whether higher input prices can be passed along down the line at a time when millions of people are jobless.
Higher prices without higher wages is just misery. Higher prices without jobs is an economic death knell.
As for the rest of the Empire survey, the headline print was a beat at 12.1 versus consensus, which was looking for 6. The forecast range was 2 to 10.
New orders rose and the employment gauge ticked up slightly. “Manufacturing activity grew at its fastest pace in months in New York State in February,” the survey said. “Thirty-two percent of respondents reported that conditions had improved over the month, while 20 percent reported that conditions had worsened.”
“This represents yet another data point for the reflationary camp, although much of this sentiment has been reflected in the recent run up in yields,” BMO’s Ian Lyngen said.
“This echoes the messaging from other surveys, and has nothing to do with base effects,” Bloomberg’s Cameron Crise remarked. “Call it another brick in the foundation of the inflation argument that is driving bond yields higher.”