Would You Pay $39 For A Bar Of Soap?

“Inflation – the ball is rolling,” proclaimed the title of one note out Friday morning following US PPI data.

Producer prices in the US rose 1% last month, double estimates. Core jumped 0.7%.

In a market dominated by machines and in a world where even the most mundane affairs are viewed through a conspiratorial lens, a half-hour delay in the release of the data was cause for confusion. The Labor Department was “still investigating what went wrong” an hour later, Bloomberg wrote. “The delayed release created more focus than the print might otherwise have received,” BMO’s Ian Lyngen remarked.

The YoY rise was the largest since September 2011 (figure above).

We’re starting to get the base effect distortions, and you should learn to live with that because it’s going to be a mainstay over the next several months. And rising commodity prices will bite. “In March, almost 60% of the increase in the index for final demand can be traced to a 1.7% advance in prices for final demand goods,” the government said, once they got around to putting the data up on the BLS’s website. A fourth of the jump in the index for final demand goods was down to a near 9% rise in gasoline prices.

All of the above was contextualized and otherwise embellished by reference to PMIs, which have been screaming about price pressures for months. The next question is whether rising costs can be passed along to consumers.

“ISM reports that customer inventories are at record lows and order books are full, the implication [being] that manufacturers potentially have the sort of pricing power we haven’t seen in years,” ING’s James Knightley said Friday. “With greater scope to pass these price rises on to customers the obvious implication is that risks are increasingly moving in the direction of higher CPI readings.”

Appreciated, but I suppose I’d just reiterate that while you can raise prices, you can’t force people to buy your products. Sure, I can put a $39 price tag on a stick of antiperspirant, but nobody’s going to buy it — consumers will just choose to sweat. This simple reality seems to get lost sometimes in the inflation debate.

“A return of the runaway price inflation… requires a rate of wage and salary growth that is rapid enough to allow consumers to readily absorb price hikes,” Moody’s gently noted last week. “Affordability is critical to sustaining an ever-increasing rise by price inflation,” the same note said. “Otherwise, widespread price hikes lead to an unwanted accumulation of inventories that ultimately trigger price discounting.”

So, maybe we should be asking manufacturers whether they plan to hike wages enough to allow their employees to afford the products they’re making.