How Long Will Rising Inflation Be Ignored?

In the latest episode of inflation running higher we have the April PPI report. The monthly PPI-FD was 0.6% which doubled estimates and fell from 1% in March. That’s a very tough comp to go up against. As you can see from the chart below, PPI spiked to 6.2% on a yearly basis which was up 2 points and beat estimates by 3 tenths. That’s the highest reading ever (going back to 2011). Yearly growth in the PPI all commodities index was 17.3% which was the highest reading since July 2008 which as the peak of the last cycle. Energy and agriculture prices exploded in 2008 leading up to the financial crisis in October 2008.

Excluding food and energy, PPI was 4.1%. The chart above calls core PPI prices that exclude food, energy, and trade services. This inflation was 4.6% which was also a record high (going back to 2014). For the month, core goods prices were up 1% due to steel mill products and meat. Food prices were up 2.1% and energy was down 2.4%. If the PPI reading is a future indicator of where CPI is headed, there will be even higher inflation in the near term. Base effects are being combined with heightened demand due to the reopening and the stimulus. Plus, there are supply chain issues.

Inflation Hurts Consumer Confidence

Inflation is the biggest issue the economy faces even though the unemployment rate is too high and the pandemic hasn’t fully ended. There are some politically motivated economists who believe the Fed should keep rates indefinitely low to save the poor by creating high employment. It’s wrong to suggest high rates are bad for the poor. Inflation is a tax on the poor. We aren’t saying the Fed should hike rates this year in response to the spike in inflation. We believe markets should decide that, but that’s neither here nor there. We’re just saying some forget how bad inflation can be for the poor and middle class.

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