US producer prices rose more than expected in August, data out Friday showed.
PPI for final demand rose 0.7% last month, slightly hotter than the 0.6% the market expected. The range, from more than four-dozen economists, was 0.3% to 0.8%.
The YoY print was 8.3%, a touch higher than consensus (8.2%) and a new record in 12-month data back to November 2010 (figure below).
Less food, energy and trade services, PPI rose 0.3% last month, a marked deceleration from July’s 0.9% leap. The YoY print was 6.3%, another new record.
The 0.7% monthly gain on the final demand services index was the eighth straight advance (figure below). Two-thirds of the increase was attributable to changes in wholesaler and retailer margins.
The final demand goods gauge rose 1% in August, nearly double July’s monthly increase. That came courtesy of a 2.9% jump in prices for final demand foods, especially the meat index, which surged 8.5%.
At the margins (and I suppose you can take “margins” figuratively and literally in this case) the data perpetuates the notion that price pressures won’t abate as quickly as policymakers hope.
Friday’s release comes ahead of August CPI (due next week), which will be greeted by the usual hand-wringing.
With the Fed having conceded that the “substantial further progress” threshold for tapering has already been met on the price side of the mandate, the incoming inflation data is less relevant than the evolution of the labor market.
August’s disappointing jobs report took a September taper unveil off the table, but a hotter-than-expected read on CPI next week would be considered in conjunction with the sharp rise in average hourly earnings that accompanied the payrolls report.
Earlier this week, data for August showed factory-gate prices in China rose 9.5% (figure below).
That was a 13-year high and raised still more questions about possible pass-through to consumer prices globally, even as CPI in China remains subdued.
“Overall, [the] release reinforces the ongoing concerns regarding elevated cost structures,” BMO’s Ian Lyngen said Friday, following the release of the US data. He went on to note that it doesn’t “trigger any new jitters per se.”
It kinda makes sense that too much liquidity in the global system is contributing to inflationary signals, or segments of the economy that are reacting to excess demand/supply dynamics. As usual, the pandemic has magnified and intensified imbalances that were already in place, making this era highly unusual and not likely to snap-back into a prior state of reality.
I highly recommend listening to this great outlook by Zolton P @ Bloomberg:
Odd Lots
Zoltan Pozsar on What’s Going on in Rates Markets Right Now
Why the system is awash with dollars that no one wants
We are setting up for a hot 2021 and first half 2022, followed by a significant slowdown. Less federal stimulus plus a pull back by consumers for big ticket items. Demand has been front loaded. Add in a taper and a much smaller infrastructure spend than the market is factoring in.
Points, in my (not infallible, offered as analytical entertainment) view, at:
– GARP, quality, min vol, at non-ludicrous valuations
– Non-cyclicals, non-discretionaries
– Defensives, yielders
– Idiosyncratic stories
– Foreign, if at earlier stage of recovery
– Inflation beneficiaries
– Rising rate beneficiaries
– Exposure to aspects of economy still farthest from recovery
– Parking places
I’ve been looking at insurance this week. Good: non-discretionary, beneficiary of rising rates, significant barriers, climate change opportunity, capital inflows not reckless (I think). Bad: Never really outperforms SP500 as a group, dividend yield nothing special, climate change risk, unexciting to the extent (102% yawn, -2% Hoodie). Oh well – we’re going back to turning over 100 rocks per tasty morsel, the way it normally is.