The US Bureau of Labor Statistics released new Producer Price Index (PPI) data today, and it’s more bad news for both business owners and consumers.
The PPI is a measure of prices at the production phase of goods and services, and is often an indicator of where consumer prices are headed. Prior to 1978, the index was known as the Wholesale Price Index.
This September, year-over-year PPI growth came in at over 8 percent for the fourteenth month in a row, reaching 8.5 percent. This was a small drop from August’s year-over-year rate of 8.6 percent, but continues to suggest ongoing upward pressure in prices. The month-over-month change for September was 0.4 percent, which was up from August’s month-over-month change of -0.2 percent. Movement remains upward, and from a very elevated base.
Once again, wholesale price growth was higher than “expected,” since economists can now virtually always be expected to paint a rosier picture of the economy than the data ends up supporting. Instead, the data points toward continued uncomfortably high CPI inflation. According to Kiplinger:
A reading of inflation at the wholesale level surprised to the upside Wednesday, stoking fears that tomorrow’s report on consumer prices will likewise show that inflation remains out of the Federal Reserve’s control.
The producer price index (PPI) rose 0.4% in September, well ahead of economists’ estimate for a gain of 0.2%. Year-over-year, PPI rose 8.5%, or a slight deceleration from August’s increase of 8.7%.
Excluding food, energy and trade services, PPI increased 0.4% month-over-month, the largest rise since May, the Bureau of Labor Statistics said. Year-over-year, the index rose 5.6%.
As with the Consumer Price Index, the narrative among optimistic analysists was that PPI measures would moderate in September and signal a downward turn. That does not appear to be the case so far. Indeed, consumer prices showed few signs of any significant moderation in August, as CPI inflation continued to surge near a forty-year highs. Continued growth in the PPI points toward ongoing growth in consumer prices in September as well.
Essentially, this PPI report suggests that there’s still little relief in sight when it comes to rising prices. This is more bad news for Wall Street which is now desperate for a Fed pivot back to active quantitative easing and interest-rate suppression. Wall Street has become addicted to the Greenspan Put and QE in recent decades, with the extent of monetary expansion becoming one of the largest drivers of stock prices.
The S&P closed lower today for the sixth day in a row since the continued growth in jobs—reported last week—coupled with this PPI report sends the signal that the Fed is unlikely to reverse course on rate hikes in the short term.
New CPI numbers come Thursday morning.
