We have another of our plethora of inflation numbers being reported to day, this time it's the producer price index, a measure of inflation at the wholesale level of the economy. We should note that this is an important measure but it is not definitive of what other inflation numbers are going to turn out to be. For there's still another level of the economy for these prices to filter through before they start to hit peoples' wallets--the retail sector, obviously. And it's entirely possible for the competitive situation there to make these price changes worse, better or even completely negate them:
U.S. wholesale prices jumped in January by the most since September 2012, led by higher costs of gasoline and indicating inflation is beginning to stir.
The 0.6 percent gain in the producer-price index followed a 0.2 percent advance the prior month, a Labor Department report showed Tuesday.
That full report is here:
The Producer Price Index for final demand increased 0.6 percent in January, seasonally adjusted,
index climbed 1.6 percent for the 12 months ended January 2017.
the U.S. Bureau of Labor Statistics reported today. Final demand prices rose 0.2 percent in
December and 0.5 percent in November. (See table A.) On an unadjusted basis, the final demand
That 1.6% is remarkably close to the last reading we got on the PCE inflation index which is the one that the Federal Reserve actually uses to think about interest rates. So, in general, our indices are all moving in lockstep, but this doesn't always have to be the case, indeed historically it hasn't been at times. For example, we know very well that Walmart is generally cheaper than many other stores--it achieves this by being more efficient. And at certain times it has been that increase in retail efficiency which has kept consumer inflation below wholesale. Interestingly, this is exactly what is happening in my native UK at present, the irruption of Aldi and Lidl into the marketplace is eroding the margins of the traditional full service supermarkets. That's keeping retail inflation below wholesale:
Rising energy costs have recently become a prime source of inflation, reversing a trend in recent years in which falling oil prices were suppressing inflation. Wholesale prices for gasoline jumped 12.9 percent over the past month and 32.3 percent over the past year.
Wholesale food costs were unchanged in January. Higher prices for pork, eggs and milk were offset by lower costs for vegetables, fresh fruits and beef, among other items.
Excluding energy, food and services for wholesaling and retailing, producer prices increased just 0.2 percent in January.
To get a proper grip on trends in inflation we usually use the concept called a "core" rate. We know that fuel and foods prices leap about all over the place (in the jargon, are "volatile") so we like to strip them out of that PPI to give a core PPI. And that's very much lower at that 0.2%--it doesn't look like producers have much pricing power at present nor that we're about to see an upsurge in inflation. We probably are going to get a rise in interest rates real soon but that's about inflation in 18 months time, not what it is today.
