April Producer Price Index

Atlas has been adamant for years that inflation is not an issue.  This is mostly due to structural issues that the economy needs to work through (e.g. the baby boomer’s aging and changing consumption habits).  But the past two months of inflation data have been more attention grabbing than normal.  Prices paid by producers have jumped in each of the past two months according to the Producer Price Index (PPI) released by the Bureau of Labor Statistics (BLS).  Please recognize that two months of data is not enough to break the weak trend, but it has raised an eyebrow or two at Atlas, and we only have four total.

Final demand prices grew by 0.6 percent in April.  This follows March’s rise of 0.5 percent.  After these two large monthly upticks, the year-over-year price change has ticked up 2.1 percent.  This is the largest twelve month increase since March of 2012 when it totaled 2.4 percent.  So even within the context of this tepid recovery, the annual look-back on this indicator has been higher, which is largely why only an eyebrow is raised at this point and our sounding any alarm is not likely to happen–yet.

Food was the primary driver of the higher tally.  It jumped 2.7 percent in the month alone.  This is where statistics can be tricky.  It is possible that the BLS got a bad sample and that May’s sample will be more representative of the population, causing the monthly change to slow.  But even excluding the fickle components (food and energy), the monthly tally was higher by 0.3 percent.  Year-over-year, this core tally of PPI is up 1.9 percent (its highest level since December 2012), suggesting the price pressure is more pervasive than just food.

Food was also the standout story in earlier stages of production.  Within the “processed goods for intermediate demand” category (think dairy products a baker would buy), the monthly uptick was 2.6 percent.  In the “unprocessed goods for intermediate demand” category (think raw milk), prices were 3.6 percent higher, so there seems to be some price pressure happening within all stages of food.

For now, Atlas will not alter our opinion on inflation but will if the facts continue to change.  Price pressure on food can have a deleterious impact on the economy because the demand for food is rather constant (which meal are you going to go without?), but if prices grow, a larger portion of Americans’ budget will be spent on eating, leaving less available for other purchases.     (by C. Cox)