Interest Rate Roundup

Tuesday, June 17, 2008

Producer price figures show wholesale inflation is up, up and away

In addition to housing figures, we got some data on wholesale inflation this morning. The verdict: Inflation keeps on climbing ...

* The headline PPI jumped 1.4% in May. That was seven times the 0.2% increase in April and hotter than the 1% gain that was expected. Worse, wholesale inflation is rising at a 7.2% year-over-year rate. That's up from 6.5% a month earlier and just shy of the 7.4% cycle high set in January.

* The "core" PPI rose 0.2%, in line with the 0.2% forecast and down slightly from the 0.4% rise in April. I am sick and tired of hearing everyone talk about figures that exclude food and energy, but the market pays attention to these numbers, so I have to as well. The core PPI was up 3% from a year ago, tying May's figure, which in turn was the highest going all the way back to December 1991 (3.1%).

* At the intermediate stage of production, prices were up 2.9%. Crude goods prices jumped 6.7%. "Core" inflation at the intermediate level was +2%, the single-biggest monthly gain going all the way back to January 1980 (+2.3%). "Core" crude goods inflation was +5%. The year-over-year figures look much worse. Inflation is running at 12.6% for intermediate goods and 41.5% for crude goods. Those are the worst readings since December 1980 and March 2003, respectively.

I'm going to keep my commentary short and not-so-sweet. Anyone who claims inflation is "well-contained" needs to have his or her head examined. These figures stink, through and through. The Fed has to normalize interest rates, and soon.


  • Believe me when I say the Fed won't. They will talk and drag their feet till the inflationary conflagration becomes unbearable.

    Somehow Helicopter Ben seems to think that recession implies deflationary prices. He needs to understand the meaning of the term - 'inflationary recession'.

    And once the dollar slide and inflation become threatening, he will be forced to raise the rates with extreme reluctance pushing us into deflationary recession - just like what the Fed did in 1931.

    He could have done much better by keeping the rates high, getting inflation under control, letting markets correct and then reducing the rates slowly to promote growth. Well, sometimes in trying to avoid the abyss you forget that you are getting sucked deep in it.

    - Shankar

    By Blogger Superbear, at June 17, 2008 at 9:25 PM  

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