Eurozone Producer Prices Rocket

Adding further weight to the evidence that global inflation is no longer to be dismissed as "transitory", Eurozone producer Prices have rocketed, latest data shows.

Trading Economics notes,

"Annual producer inflation in the Euro Area jumped to 7.6% in April, the highest since September of 2008 and above forecasts of 7.3%, as energy cost soared 20%. Excluding energy, producer inflation was 3.5%. Ireland, Spain, Netherlands and Greece recorded double-digit rates and prices also accelerated in Germany, France and Italy. On a monthly basis, producer prices in the bloc went up 1%."

For the last year, prices for a whole range of goods and services have been depressed, because consumes were prevented by government diktat from buying them.  These were generally things that take up a large part of the basket of goods and services used to construct consumer price indices.  Meanwhile other goods and services, of the kinds consumers turned to over the period, rose sharply in price, but were not represented, or were underrepresented in those indices.  Now we have, as economies open up, sharp rises in prices of goods and services, including all of that manufacturing output, which is demanding raw materials and labour, and whose prices are rising sharply as a response to this rising demand, also fuelled by the large amounts of liquidity that central banks have, and continue to pump into the global economy, as it overheats.

A large part in the increase is accounted for by a rise in energy costs, but that is before the recent rise in oil prices has been taken into account.  Further increases in oil prices are likely to build in further price increases over coming months.  As i wrote yesterday, the oil price is a long way from the $147 it reached in 2007, and its unlikely to breach even $100, for the reasons given, but that still leaves up to another 50% of increase that could feed through into the costs of businesses and households.  Businesses will seek to recoup those costs in higher prices, including the costs of higher wages paid to workers, as workers face these higher costs of living, and as labour shortages also force firms to compete for available worker pushing up wages.  Central banks, anxious to enable firms to protect their profit margins, by raising prices, will provide the required liquidity to enable them to do so, thereby making the inflationary spiral not permanent, but certainly not transitory either.

As firms, households and governments across the globe try to finance their astronomically inflating debts, by yet more borrowing, central banks will also want to continue providing liquidity in the mistaken belief that they can control the price of capital, by such action, and the mistaken belief that interest rates are determined by the amount of liquidity (money tokens) they provide.  That will do nothing to prevent interest rates rising, which are determined by the demand and supply for money-capital, not money tokens, i.e. the ratio of realised profits and savings to the demand for money-capital to finance accumulation, and cover payments.  But, the attempt to portray inflation as transitory, in order to try to prevent "inflation expectations" rising, as well as the false theories on money and interest rates, held by central bankers, together with their desire, for as long as possible to keep yields low, and asset prices high, will lead them to continue flushing more and more liquidity into the global economy, thereby further stoking an inflationary spiral.  The demands of Erdogan in Turkey that his central bank cut its policy rates, even as Turkish inflation soars, and its currency is destroyed, is illustrative of the mindset.