It’s a broken record. Input prices are rising. And PMIs continue to reflect as much.
This week’s data stateside kicked off with Empire manufacturing, which beat. The headline gauge printed 17.4, the highest since last summer and better than the 15 the market was looking for.
Given the macro backdrop, all eyes were on prices paid, and they didn’t disappoint. Input prices rose at the briskest pace in a decade, which was true last month too, by the way. 64.4 is the highest read since mid-2011.
That looks like an alarming surge. It’ll be more headline fodder for the inflation crowd, and it’s incremental for the reflation story. Remember, there is a distinction between inflation and reflation. The latter is a narrative about a pro-growth macro regime. The former is just what it sounds like.
The color accompanying the survey described “sharp input price increases” and noted that “the prices received index was little changed from last month’s two-year high, pointing to ongoing selling price increases.”
Of course, you do want to at least acknowledge that some of this is attributable to demand. Also, supply chain distortions are still in play and getting a “clean” read on anything is still mostly impossible. We won’t know what the picture actually looks like for months. “Delivery times again rose at the fastest pace in a year,” the survey said.
Firms are optimistic and anticipate “significant increases in employment.” But, again, price pressures are the story right now. It looks as though the prices paid-received spread is the widest in a decade (figure below). That bodes poorly for margins.
“The index for future inventories rose to a multi-year high, and both the future prices paid and prices received indexes continued to march upward,” the New York Fed remarked. “The index for future employment rose to its highest level in over ten years, suggesting that firms widely expect to increase employment in the months ahead.”
So, the good news is that when consumer prices rise to keep pace with surging input prices, at least the consumers will have jobs.