June Producer Prices

Firms’ reprieve from inflation did not last long according to the Bureau of Labor Statistics.  The Producer Price Index (PPI) jumped 0.4 percent in June after dropping 0.2 percent in May.  Inflation did not discriminate as prices rose in both goods and services, up 0.5 percent and 0.3 percent respectively.  The earlier stage of production also rose after falling in the prior period, up 0.4 percent following May’s decline of 0.1 percent.

Final demand goods, those items purchased by end users, were heavily influenced by fuel costs.  Energy, up 2.1 percent, accounted for nearly 90 percent of the monthly uptick in goods; this was largely due to gasoline’s jump of 6.4 percent during the month.  Excluding energy, goods increased by just 0.1 percent in June.  Year-over-year, goods are 2.1 percent more expensive at the wholesale level.

Final demand services may not have jumped as much in June as their goods counterpart, but there could be price pressures building in earlier stages, and firms may try to pass these upticks on to you in the months ahead.  It appears banks are charging companies more for deposit services, increasing 3.2 percent in the month, and business loans cost 0.3 percent more than a month earlier.

Prices continue to grow, but when the annual rate of change is considered, producer inflation is not outside of its normal levels.  Declining for the second consecutive month, headline PPI has increased by just 1.9 percent in the last 12 months, down from 2.0 in May.

It is virtually impossible to discuss inflation and not mention the Federal Reserve.  Janet Yellen wants to engineer more price pressure because she and her cohorts think higher costs will spur more consumption in the near term.  Atlas does not necessarily disagree with inflation possibly stoking consumption; we just question the central bank’s ability to induce higher costs because of countervailing forces that work against the Federal Reserve like global demographics and Americans’ dearth of savings at a time when baby boomers want to retire.             (by C. Cox)