US Producer Prices Surge By Most On Record

Providing yet further proof that global inflation is surging, and becoming embedded, the latest US data on Producer Prices, shows it rising by 6.6% over the last year, the largest rise on record. But, on a month over month basis, it rose by 0.8%, as against estimates of 0.5%. Not only did that mean it way exceeded the estimate, but projected forward, its gives a figure of 9.6% for the year ahead. In other words, far from the inflation being transitory, or likely to decline, it is actually accelerating.

On the same day, the figures for retail sales also came in. That showed a drop of 1.3%, as against forecasts of a 0.6% drop, but the figure for last month was revised higher to 0.9%, as against the original figure, which was flat. Aggregating the the figure for the two months, therefore, means only a drop of 0.4%. The drop was anticipated, because, as workers start to go back to work, the furlough payments, and other federal support payments, particularly the large cheques sent to workers as part of the fiscal stimulus, a couple of months ago, are no longer there to stimulate demand. In addition, in many sectors, actual sales are being frustrated due to lack of supply, as businesses struggle to get inputs, and workers. That, in itself is feeding through into higher final product prices.

The higher producer prices have been fuelled mostly by inflation for the production of goods, as against services inflation. The prices of manufactured goods has been rising, as the prices of primary products has risen sharply over the last year. Many metals have risen by around 90%, and the prices of foodstuffs have risen by similar amounts. Timber prices rose sharply, and then pulled back, somewhat, but appear to be on the rise again. Oil prices have doubled over the year, and appear on the way to going over $80 a barrel.

Higher final product prices, combined with the ending of government payments to individuals are likely to cause some short-term pull back in consumer spending, but as workers start to go back to work, especially in conditions where labour shortages are also now pushing incomes sharply higher, that will reverse. As consumers see inflation remaining at high levels, they are also likely to begin to buy in advance of future price rises, causing demand to rise further. That is likely to be particularly the case in relation to goods that are seen as being in short supply.

A similar thing can be seen in the UK, where despite the governments best efforts to crucify the leisure and hospitality industry, there is a shortage of around 180,000 workers, as many have left during the period of furlough, some going to other jobs, others going back to Europe. The labour shortage has caused incomes in the sector to rise by 18%, as firms compete for labour. In retail, incomes are reported to have risen by 10% as businesses scramble to get workers. Anyone who has tried to get a tradesmen in the last week or so, also knows that they are as rare as hen's teeth, or fulfilled Tory promises, with many firms saying they can't take on any new work until next year!