Up the Price Pipeline, Inflation Rages at 20%

wolfstreet.com
5 min read
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Producer prices that are input prices for consumer-facing industries are red-hot. But further up the production chain, prices are white-hot.
We're going to go step by step so you don't get dizzy right away. The Producer Price Index for Final Demand – these are input prices for consumer-facing industries and are the next step up in the pipeline for consumer prices – jumped by 0.7% in August from July. This pushed the year-over-year increase of the PPI Final Demand to 8.3%, the biggest year-over-year jump in the data going back to 2010.

Prices for goods jumped by 1.0% month-over-month, including food up 2.9% (35% annualized), with meats up 8.5% (102% annualized), while energy rose 0.4%.

Prices for services jumped by 0.7% month-over-month, including a 2.8% spike in transportation and warehousing costs (34% annualized), reflecting port congestion, spiking container freight rates, backlogs, and general chaos in peak shipping season before the holidays.

The core PPI, which excludes the volatile food and energy segments – though food and energy make up a big part of spending for consumers whose income is on the lower portion of the income scale – rose 6.7% year-over-year according to the Bureau of Labor Statistics today.

If businesses are able to pass on those price increases – which they have been easily able to do this year because the whole inflationary mindset has changed – then they will end up in consumer price inflation, at which point consumers will encounter them.

While some prices that previously spiked have now been declining for a month or two, other prices that had risen more moderately in prior months, or had declined, are now jumping. The overall indices average out this game of Whac-A-Mole.

Further up the pipeline: Intermediate Demand.

Intermediate Demand comes in four stages by production flow, ranging from Stage 1 industries that are some distance up the production flow and create in puts for State 2 industries, to Stage 4 industries that primarily create the inputs for Final Demand industries, which create the inputs for consumer-facing industries.

Across all four stages of the…
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