US producer prices rose at a double-digit 12-month rate for a sixth consecutive month in May, data out Tuesday showed.
The 10.8% YoY rise notched in May counted among the largest on record, even as it represented a slight reprieve from April’s downwardly-revised pace and March’s 11.5% scorcher.
Consensus expected 10.9% from the headline final demand index. Obviously, the conjuncture shown in the figure (below) has no modern precedent.
Ex-food and energy, PPI rose 8.3% YoY, meaningfully lower than the 8.6% consensus expected, with the caveat that “meaningfully” is a misnomer under the circumstances.
Stripping out food, energy and trade, the 12-month gain was 6.8%, unchanged from April’s annual pace.
The MoM prints weren’t particularly encouraging, even as they could’ve been worse. The headline gauge rose 0.8% from April, matching estimates (figure below). Ex-food, energy and trade services, the monthly advance was 0.5%, hotter than April’s increase, but slightly cooler than expected.
Downward revisions were welcome, but generally speaking, it’d be a stretch to use the word “progress.”
Notably, prices for final demand food were flat MoM. The unchanged monthly print came after a string of hot readings, including a 2.4% MoM increase in March, following Russia’s invasion of Ukraine.
The 1.4% monthly increase in the goods gauge was the fifth consecutive, and was largely attributable to another big jump in the energy component. The gasoline index rose 8.4%. Prices for jet fuel, residential natural gas, diesel fuel and, of course, “processed young chickens,” all rose. (Fortunately for the piccata lovers, veal prices fell.)
In services, freight costs accounted for a third of the index’s monthly advance, which more than reversed April’s decrease.
You’d be reaching to interpret the report as a reprieve despite the marginal undershoots to consensus on the 12-month aggregates. Even the revisions were amenable to pessimistic spin: April’s red-hot PPI report presaged May’s CPI game changer, so if factory-gate inflation was actually cooler than originally reported, it didn’t do much, if anything, to ameliorate the pain for beleaguered American consumers.
There is some nuance in inflation, although admittedly the numbers are awful right now, despite any nuance. That said, I sometimes follow David Rosenberg, formerly of Merrill Lynch and some Canadian firms. He now has his own research shop. Anyway he recently composed a price index of items directly affected by higher energy prices, and those that were not as much. The energy affected items were up close to double digits. The prices of the not directly affected were up about 4%. So yes inflation is up. Rosenberg’s work would suggest that the situation may not be as dire as the talking heads (like Larry, Mohammed, and countless others) bray about. The bond market just had a tantrum and you have to respect that. A more sober reading of what is going on is that we had a shut down shock (supply) and reopening shock (demand). Frequently exogenous shocks induce recession- we have had two major ones (pandemic, Ukraine) and we are about to have a 3rd – rapid FOMC and market induced tightening of financial conditions. Inflation is poised to become the last “war”. We are about to see a significant slowdown in economic growth worldwide – if it is not already happening. This is likely to be an echo effect of the 2020 recession that the FOMC short circuited. This time around, there is little appetite to ease the pain- and if the FOMC is not careful we could have a major slowdown to deal with starting later this year.
I think inevitably all this winds up in a deflationary cycle and that has been somewhat predictable to any true Skeptic of the system that watched the over the last ten (or so) years as the rationale for Financial decisions was conveniently massaged to perfection.. Not pointing any fingers here , just observing and trying to learn (a little bit).. No one can abolish economic cycles not even the US Govt .. without some blow back…