In the largest rise in its history, the producer price index (PPI) surged by 6.6 percent over the 12-month period ending in May. The PPI was created in 2010, so we're not talking about a long history, nor are we able to use it to compare the current economic picture to earlier times, like the stagflation of the seventies.
Producer prices excluding food, energy, and trade services—a gauge often preferred by economists because it excludes the most volatile components—rose 5.3 percent in May from a year earlier. This, too, was the biggest increase since the Labor Department started tracking that number in 2014.
Energy prices surged by a seasonally unadjusted 46.6 percent over the year in May, goods advanced 11.1 percent, and food 4.4 percent, the data showed.
Producer prices are considered a leading indicator of consumer price inflation, which accounts for the bulk of overall inflation. While the elevated manufacturing price data suggest consumers are more likely to see prices rise in the future, Federal Reserve officials have repeatedly said they believe consumer price increases are “transitory,” with the expectation that inflation will eventually moderate back to the central bank’s two percent average target.
What does that mean, "inflation will eventually moderate?" After "consumer price inflation" hits, when can we expect "eventually" to arrive?
One indicator of the serious inflation that threatens, is the increasing number of officials who define inflation as higher prices. Inflation refers to an inflated supply of money. Higher prices are the typical result, due to a reduced value of the dollar. But higher prices can be masked or mitigated by other factors like increased productivity, or reduced labor costs associated with outsourcing. Just know that the Modern Monetary Theorists in power at the moment have no plans to stop inflating the supply of money.
Comments