US Wholesale Prices Rise Fastest in 27 Years

The US Labor Department has released its Producer Price Index for July, and it stands at 1.2% for the month, 9.8% since last July. The last time the number was higher was back in June 1981 (six months into the Reagan Years); then, the 12-month figure was 10.4%. What’s troubling is the PPI tends to be a leading indicator, meaning that inflation is going to get worse before it gets better at the consumer level.

As usual, it’s food and energy prices that are causing much of the problem, rising 0.7% in July. CNN noted, “Energy prices rose by 3.1%, after a 6.0% jump in energy prices in June and a 4.9% jump in May. In the 12 months through July, prices for finished energy goods have surged 28%. Food prices rose by only 0.3% in July, after increasing by 1.5% in June and 0.8% in May. In a year- over-year comparison, prices for finished consumer foods have increased by 8.7%, according to the report.”

However, that also means that the core rate of inflation that strips those out rose 0.7%, and the core PPI in the last 12 months has gone up 3.5%. This is a very big figure to be driven by asset inflation rather than wage pull inflation. And it will be difficult to get under control without pushing the economy into recession or merely putting up with it for a long time.

As mentioned, the PPI is a leading indicator, and it takes roughly 6 months for those increased prices to show up in the Consumer Price Index. In July, the CPI rose 0.8%, about twice what the consensus on Wall Street was. Six months from now, one can expect a similar or higher number as the PPI trickles through.

There is little the Fed can do here. America’s financial problems are fiscal rather than monetary. An end to the chronic deficit of the Bush administration would help, and an end to the money pit of Iraq-Nam would as well. Then, an industrial-trade policy that doesn’t unilaterally disarm American business might get the trade deficit moving in the right direction. It will be a long journey no matter who the president is.

© Copyright 2008 by The Kensington Review, Jeff Myhre, PhD, Editor. No part of this publication may be reproduced without written consent. Produced using Fedora Linux.

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