Wednesday, August 17, 2011

Annual PPI Core Inflation Was 2.5% in July

The report on producer prices for the month of July was released today by the BLS, here is one observation:

1.  Annual core PPI inflation (finished goods less food and energy) was 2.5% in July, the highest in two years, but below the 4.7% peak in late 2008, and far below the double-digit rates of the early 1980s (see chart above).  

As I have discussed before, the inflationary periods of the 1970s and 1980s were always associated with price increases "across the board" for everything including: energy, food, housing, wages, interest rates, housing prices, and even the core components of the PPI and CPI.  We still don't have that pattern reflected in today's prices, wages and interest rates.  

One example: the current prime rate is 3.25%; in the inflationary 1980s it was above 20%.  


At 8/17/2011 1:46 PM, Blogger Benjamin Cole said...

If we look deeper at the PPI numbers, a lot more moderation is seen.

The PPI index for July was 192.4. It was 185 for July 2008.

That's a 4 percent increase in three years. That's an annual rate of about 1.3 percent, or probably below target.

If we use recent PPI numbers, we are getting a lot of "bounce" from the depths of the worst recession we have had since the Great Depression. I would hope for some bounce there!

I must say, I find the current obsession with minute rates of inflation to be puzzling, especially as we recover from the deepest plunge in real output since WWII.

Now is not the time to worry about inflation. In fact, if we regard Milton Friedman's commentary about Japan, now is probably the worst ti

At 8/17/2011 2:32 PM, Blogger JPINTX said...

I still have the same question about "CORE inflation" that I have had for a long time, what the hell is core about it when you leave out food and energy????? Personally. I can't think of material things more "core" to life than those two.

At 8/17/2011 2:46 PM, Blogger morganovich said...

finished goods were 7.2%.

the monthly core in july annualized at 5%.

"core" is a nonsense metric.

if you don't eat or use energy, i have no idea how you live.

"core" is like saying , well, except for the things that became expensive, prices were moderate.

that's far from minute.

At 8/17/2011 2:46 PM, Blogger morganovich said...

so bunny, you never answer the question:

was there high inflation in the 70's?

At 8/17/2011 2:51 PM, Blogger morganovich said...

also note:

look at the drop off after 1992.

that was a methodology change.

you cannot compare pre 1992 data to post.

the "core" number would read more like 5-6% if the data were normalized.

At 8/17/2011 3:11 PM, Blogger Benjamin Cole said...

Morgan, UFO Master and Commander Salamander:

Inflation was higher in the 1970s than today, as evidenced by market interest rates.

Even so, the way the CPI was measured in the 1970s overstated inflation.

We saw real estate values going up in the 1970s, not down as today.

Measuring inflation is always tricky, and subject to judgments. If you wish to believe that we accurately measured inflation in the 1970s but not today, go with that.

The entire bond market has been fooled.

BTW, the numbers I cite for the PPI are not core, but the actual reported numbers. Up 4 percent in three years.

You going to lose your Chicken Inflation Little bowels on that?

And how much higher is the price of dilithium crystals today than three years ago?

PS. Rick Perry is a bilious knave.

At 8/17/2011 3:12 PM, Blogger PeakTrader said...

Inflation slowed in the '90s mostly from:

1. Falling oil and commodity prices.

2. Faster productivity growth.

3. Increasingly larger trade deficits (or more goods).

At 8/18/2011 8:02 AM, Blogger morganovich said...

CPI up 0.5% for june (6.2% annualized rate)

bubble bunny-

so you are saying that there was no high inflation in the 70's?

your whole argument is absurd.

you trot out the boskin report, which says inflation in the 70's was overstated by 1.1% and use it to justify reducing the cpi reading by 5%.


you cannot use those productivity numbers to explain the 90's. they are calculated using CPI.

if you understate CPI, you overstate productivity.

At 8/18/2011 9:36 AM, Blogger morganovich said...

"BTW, the numbers I cite for the PPI are not core, but the actual reported numbers. Up 4 percent in three years. "

and your math is just as bad as it was last time.

from the cut and paste bunny file:

"it's like saying, well i drove 9 miles at 10 mph and the last mile at 110 mph and it only averages 20mph, so it should not have hurt when i crashed in that last 100 yards.

you are one of the most numerically illiterate people i have ever met."

you are literally arguing that a pot of water is not boiling now because it was cool and hour ago.

At 8/21/2011 9:55 PM, Blogger VangelV said...

Silver is at $43.50

Gold is at $1,865

Brent is at $109

Copper is at $4

Sorry Mark but the markets are saying something else and the BLS is playing games once again.


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