US producer prices rose far more than expected in January, closely-watched data out Tuesday showed.
In what can only be described as yet another concerning development on the inflation front in the US, PPI rose 1% MoM, double estimates. No economist (not a single one) out of 53 surveyed predicted a print that hot. The highest estimate was 0.8%.
It was the largest monthly increase since May (figure below), and will surely fan the flames vis-à-vis speculation for aggressive front-loading of rate hikes from the Fed.
Notably, December’s print was revised sharply higher. The MoM ex-food, energy and trade services print was 0.9%, the sharpest increase in a year.
On a 12-month, unadjusted basis, PPI rose an eye-watering 9.7% (figure below). That was a country mile above expectations (9.1%) and dashed hopes that January’s figures would show a marked deceleration in the headline print.
Insult to injury was an upward revision to December’s headline. The YoY ex-food, energy and trade print was 6.9%, the second highest on record, behind only December and November’s 7% prints.
Final demand services prices rose 0.7% last month, unchanged from December’s advance. Although much of the increase was down to hospital outpatient care prices, gauges of machinery and vehicle wholesaling, apparel, jewelry, footwear, accessories, traveler accommodation and freight transportation all rose.
The MoM gain in final demand goods was 1.3%, a sharp acceleration from December, when prices fell slightly. Gauges for cars, diesel fuel, gasoline, beef, veal, dairy products and jet fuel all rose. (So, if you were jet-setting last month and eating veal piccata in transit, your jaunt was even pricier than usual.)
I suppose you could argue this was “priced in,” but it’s more evidence to suggest there’s no real abatement in price pressures across the world’s largest economy. If anything, they’re still broadening out.
“Base effects have taken the YoY measures off of their cyclical peaks… but don’t mistake that for a substantial decline in underlying inflation pressures, as this monthly data indicate,” Bloomberg’s Cameron Crise wrote, adding that “the pressure will remain on the Fed to adjust policy significantly, and markets will need to deal with the associated fallout from that.”
Agreed. On all points. As BofA’s Michael Hartnett put it last week, you can call it whatever you like “but it ain’t transitory.”
If the inflationary psychology moves from the wholesale to the consumer level we will have a lot of fireworks.
What does this mean, “move from the wholesale to the consumer level”? I’m a lower middle class consumer and that means that a trip to the grocery store that cost $75 no so long ago is now often $100, and that’s not counting the price of gas it took to get there. We all know that inflation is back, and we all know that everyone (in our lower middle class community) knows that inflation is back. Businesses know this… they’re counting on it as they jack up their prices because we, buying from them, suck up the prices as best we can, we now expect price increases at the retail level because what choice do we have, it’s all around us in every category. The fireworks are here, they’re just mostly going Boom in our checkbooks and wallets, perhaps soon to show up in our (collective) credit card balances. We’re too busy scraping by to put on any other kinds of firework displays right now. Unless I misunderstand you Bill, we the consumers do know that we are a part of the inflationary psychology, that we step up to the counter and commiserate with the cashier about how much this damn thing costs, and either swallow the cost or leave it on the shelf. And every cost increase we swallow encourages the new inflation narrative. PS. I suspect I’m not a typical subscriber here at HR; nothing in my career history has even remotely required me to know what a yield curve might be, let alone what factors might induce it to steepen or flatten.
A valuable experience nonetheless.
Over the weekend, we paid 30% more for a pound of scallops than we did in the fall, $13 for a pound of bacon, and $6.50 for 14 brussels sprouts. (Special occasion: we won’t be doing that again.)
Food inflation definitely not moderating. (Real yields headed up. Fade the gap up on Ukraine news at the open.)
Try Costco.
You might have to buy more than 14 brussels sprouts at a time, however.
I recently bought a 22 oz. bag of pre-popped popcorn for about $6.50 from Costco. Versus a 4.4 oz. bag of Skinny Pop for about $3.00 at the local (national chain) grocer.
No Bull Bullard sh*t us not?
Supply chains aside, consumers have been keeping prices under their collective thumb for a long time, a barrier which it was hard for business to break through. IMHO COVID shortages like TP and meat, etc. changed the psychology of consumers in the collective store. Somehow they saw some logic in rising prices and accepted them. I took no time for business to see the crack in the barrier to price increases and shamelessly rush in. It will be hard to close the door anytime soon.
I read comments blaming businesses for inflation. It’s unclear to me that’s warranted. We shall see if businesses are actually increasing or even maintaining their margins.
We have already seen how US businesses price to the market’s capacity to pay. Case in point: RAND Health Care produced a report titled ‘Research Report Comparing Insulin Prices in the U.S. to Other Countries’ in September 2020. RAND found that the average gross manufacturer price for a standard unit of insulin in 2018 was more than ten times the price in a sample of 32 foreign countries:
• $98.70 in the U.S.
• $8.81 in the 32 non-U.S. OECD countries for which they have data
Maximize profits, it’s the American Way! Own it.