Thursday, April 14, 2011

10-Year History of PPI Inflation Update

Based on today's PPI report from the BLS, the charts above are updated from last month's CD post on producer price inflation where I suggested that it's hard to make a strong case for producer price inflation when looking at a 10-year history of the PPI and its three main components.  

The 12-month inflation rate of the crude material component of the PPI has been trending downward, and is less than half of the rate compared to a year ago, and about one-third the peak for crude material inflation in 2008. The other main PPI components (intermediate goods and finished goods) have turned up a little bit recently at annual rates, but finished goods inflation is below its year-ago level, and both finished good and intermediate inflation rates are still below their levels in 2007, and about the same as their levels from mid-2002 to 2006. 

The bottom chart above for just the overall PPI annual inflation rates over the last ten years shows a similar pattern: A slight increase in recent months for PPI inflation, but still below the levels in March and April of last year, below the 2008-levels, and about the same as the 2004-2005 period.  And the PPI level of 199.1 in March is still 3.1% below the peak of 205.5 in July 2008.  

Update:  Brian Wesbury and Robert Stein present an opposing view, and make the case here for inflation:

"The inflation problem at the producer level continues to get worse. While headline producer price inflation fell short of consensus expectations in March, we would not call an increase of 0.7% good news. Prices are still up 5.8% in the past year and accelerating upward. In the past six months producer prices are up at a 10.9% annual rate; in the past three months they’re up at a 13% rate. Most of the gain in March was due to energy prices. 

But, while the Federal Reserve can still claim core inflation is low for consumers, core producer prices are accelerating, up 0.3% in March and up at a 4.2% annual rate in the past three months. Further up the production pipeline, core intermediate prices increased 0.9% in March and are up at a 9.8% annual pace in the past six months; core crude prices fell 2.3% in March but are still up at a 29.5% rate in the past six months. Based on these inflation signals and the current state of the economy, the Fed’s monetary policy is way too loose."


At 4/14/2011 9:08 AM, Blogger morganovich said...

PPI has shown significant upward pressure since the beginning of the year.

it's up over 3% in Q1 annualizing to 13% if this pace holds. (0.8, 1.6, 0.7% in jan, feb, mar)

are you seriously arguing that this is a sign of tame inflation?

what this is really showing you is how far off CPI really is.

how do you average 6% PPI and 2% CPI for decade? that's just not possible.

At 4/14/2011 9:19 AM, Blogger morganovich said...

of other interest, the MIT BPP index has gone from 101.1227 to 103.0369 so far this year, meaning that inflation in the first 3.5 months of 2011 is is now 2.05%, over the fed's target. note that this is NOT an annulaized number, this is just the number year to date. thus, we need deflation for the rest of the year just to get us back on target, even using internet prices, which inflate less than the economy as a whole.

inflation looks like it has slowed a bit over the last 30 days, but it is still running at a monthly number of 0.46% according to BPP. that annualizes to 5.7%, hardly tame inflation/borderline deflation. use that as a GDP deflator and we are in recession.

the absolute numbers here matter.

the fact that we are down from the 0.81% monthly rate we hit in feb (10% annulaized) to 5.7% now (though more like 8% if you annualize YTD) does not mean inflation is under control and more than temps dropping from 110 to 105 means that is is cool outside.

At 4/14/2011 12:06 PM, Blogger Benjamin Cole said...

The Inflation Chicken Littles amaze me--so limited is their world view, I can only assume they are front-men mau-mauing on behalf of people who own bonds.

Since when are we so timid in the face of low single-digit inflation? Oh the inflation sky is falling!!!

BTW, in the modern-era, there is a central bank that has snuffed out inflation. The Bank of Japan.

In the 20 years that the BoJ wiped out inflation, asset values in Japan have fallen by 75 percent (stocks and property), the yen has appreciated, wages have fallen, and the economic energy in the world has shifted to China and Japan.

Japan is now into its second straight year of deflation, and is the perennial sick man of Asia. The longest experiment ever with a central bank snuffing out inflation is not yet over, but the results continue in a southerly direction.

Putting a monetary noose around the economy's neck has not yielded what the money-fetishists promised: price stability, confidence and growth.

Well, in Japan they got perma-gloom.

Now is not the time to fight inflation--indeed a few years of moderate inflation is the tonic the USA needs.

At 4/14/2011 12:51 PM, Blogger morganovich said...


only the truest of the deluded bubble babies would call 8-13% inflation low.

there are ZERO signs of deflation in the US and many signs of high and accelerating inflation.

none of the data agree with the CPI. BPP shows 2011 inflation above the fed target for the year after only 14 weeks.

you are like a broken record with no data on it.

further, i see you are demonstrating your utter financial ignorance once again:

"I can only assume they are front-men mau-mauing on behalf of people who own bonds."

so, what happens to bond prices when inflation goes up benji?

they drop. so that's supposed to be good for bond holders?

you have this completely backwards.

those proclaiming high inflation are hurting the bond market, not helping bond holders. bill gross at pimco believes inflation is massively understated which is why he owns NO us govvies.

any econ 101 student knows this.

and you wonder why i doubt you ever studied economics.

that's an error a high school kid wouldn't make.

you are even backwards in terms of attribution. what is really going on is BLS complicity in spreading the "no inflation" lie to keep government debt issuance costs low and reduce indexed price increases in social security and medicare.

At 4/14/2011 12:59 PM, Blogger geoih said...

Quote from Benjamin: "Now is not the time to fight inflation--indeed a few years of moderate inflation is the tonic the USA needs."

So, the best tonic for the USA is to slowly (more quickly now) rob every person of the value of their money, so the government, and their politically connected corporate buddies, can continue to spend on their special interests and pet projects, and generally corrupt and steal for the benefit themselves?

Keynes was disproven decades ago. The monetarists record is no better. Explain to us in what universe is inflation a good thing?

At 4/14/2011 1:45 PM, Blogger Benjamin Cole said...

Morgan Frank:

You need remedial education, The reason bondholders are always hiring mouthpieces to mau-mau for them on inflation is that inflation "hurts" bondholders.

So people who placed a bet on bonds would rather we suffocate the money supply than have solid economic growth with some inflation.


Some inflation is the necessary lubricant for a modern economy, and has to do with wage stickiness and investor confidence.

Sure, you can have price stability and minor deflation: The result is Japan. Despite incredible cultural strengths--good work ethic--they have fizzled for 20 years and counting, even as the yen has risen.

Your money only loses value, in moderate or low inflation--if you keep it in a mattress. In that case, you deserve to take losses, as you are pulling your money out of the economic system, and no longer contributing to growth.

You should invest your money productively, and you will benefit from inflation and growth.

At 4/14/2011 2:01 PM, Blogger morganovich said...


have you been taking stupid pills this week?

so bond holders are deliberately out trying to hurt bonds and cost themselves money?

that costs them money. it seems that such a conspiracy would be self correcting as anyone stupid enough to participate would bankrupt themselves.

do you even understand how bonds are priced?

fed bond purchases push bond prices up. it's free money for bond holders.

you are arguing that bond holders are fighting against policies that would push up the price of their holdings.

if i owned bonds, i'd want everyone to thing inflation was low and for the fed to bid the price up as high as they could. if the increase in money supply comes from fed bond purchases, that's christmas for bond holders.

your economic illiteracy seems to be exceeded only by your dogmatic belief in these foolish scenarios.

At 4/15/2011 6:35 AM, Blogger geoih said...

Quote from Benjamin: "Some inflation is the necessary lubricant for a modern economy, and has to do with wage stickiness and investor confidence."

No, thst's just your incorrect justification for easy credit based on nothing. Economies today function under the same laws (and I don't mean legislation) as economies in the past. Using adjectives like "modern" is just smokescreen jargon for manipulating the economy for political gain.

Your justification for low inflation is simply a confirmation of the fraud. There is no incentive in your system to save, and without saving, their can be no real investment, only robbery.

At 4/15/2011 8:50 AM, Blogger morganovich said...

how about that CPI number today?

up 0.5% in a month (that's a 6.1% annualized rate).

of course, the inflation apologists who do not eat, warm their home, or drive will say that "core" is tame, but that's a bit like saying "if i didn't have all these weights on my feet, i could run fast".

and that number is likely much too low.

unmodified, the number is easily twice the CPI, which squares well with the price increases we have seen in the export and import figures (which the BLS does not adulterate as they are produced by the census bureau). they are showing annual inflation in the low teens.

it seems a bit of a stretch to claim that our imports and exports are up 13%+ in price, but we are seeing no inflation in the rest of the economy.

this also squares much better with the PPI number (unless you believe we have had 6-8% compounded annual productivity gains in the last decade, which is clearly not the case).

the current CPI was designed not to show inflation for political reasons. this was clinton and greenspan's means to try and rein in entitlement spending without having to announce cuts. it was cowardly policy that has since caused severe and ongoing economic harm and justified ultra loose monetary policy and unleashed a set of concatenated asset bubbles and debt accumulation that is literally unprecedented in economic history.

thus, a mighty economic empire is crippled by the cowardice of leaders. this is like using napalm to weed your lawn.

At 4/21/2011 8:15 AM, Blogger VangelV said...

are you seriously arguing that this is a sign of tame inflation?

Yes, Mark will argue that there is little inflation no matter what the real world experience shows. For him the numbers don't matter. Perception and intentions do.


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