Producer Price Increases Match Highest Annual Rise on Record, Fanning Consumer Inflation Concerns

Sub-assembly worker Joel Dykema works on the sub-assembly of a transformer in the RoMan Manufacturing plant in Grand Rapids, Mich., on Dec. 12, 2018. Rebecca Cook/Reuters

Producer prices rose in the 12 months through October at 8.6 percent, matching the prior month’s rate—the highest since 2008—and reinforcing broader concerns about inflation as higher production costs tend to trickle down to consumers.

The Labor Department said in a Nov. 9 statement that the producer price index (PPI) jumped by 8.6 percent year-over-year in October and 0.6 percent month-over-month, in both cases matching economists’ forecasts.

The monthly rate represented a 0.1 percentage point rise over the prior month’s pace, suggesting the rate of inflation was picking up after several consecutive months of successively lower numbers.

Since producers often pass on higher input costs to consumers, the PPI data is widely seen as a leading indicator of consumer price inflation, which accounts for the bulk of overall inflation.

Analysts at ING said in a recent note that the extent to which elevated producer costs will ultimately get passed on to consumers depends partly on whether businesses will be willing to squeeze margins to maintain volumes.

But that becomes less likely the longer supply chain bottlenecks persist, the ING team argued, “which means that we expect goods inflation to further increase over the coming months and to remain elevated throughout the first half of the year as pipeline pressures remain fierce.”

The PPI data comes a day ahead of the Labor Department’s figures for October’s consumer price index (CPI), a key measure of inflation from the perspective of end consumers of goods and services. Consensus forecasts predict a year-over-rise of 5.3 percent in the CPI inflation gauge for October, with the prior month’s rise coming in at 5.4 percent, near a 30-year high.

High inflation has emerged as a key theme in the post-pandemic economic recovery, with its persistence seeming to come as a surprise to Fed officials, who initially dismissed it as a “transitory” phenomenon but have increasingly started to acknowledge it as a stubborn threat.

Federal Reserve Vice Chairman Richard Clarida said on Nov. 8 that inflation this year has been “much more than a ‘moderate’ overshoot of our 2 percent longer-run inflation objective,” adding that inflation risks are weighted to the upside.

The Biden administration, which blames rising prices on pandemic-related supply chain bottlenecks, has faced sharp criticism from Republicans for the inflationary surge.

“The Biden admin is gobbling up your dollars this Thanksgiving!” Rep. Diana Harshbarger (R-Tenn.) said in a tweet, singling out several Thanksgiving staples like turkey and carrots, which she said were up by an annual 27 percent and 47 percent respectively, an apparent reference to recent reports citing figures based on U.S. Department of Agriculture data.

While prior months saw shocking price surges in areas like lumber, bacon, and used cars, now price pressures have been seeping into other categories.

“Inflation is broadening out, with the necessities of food and shelter together accounting for more than half of the increase in September,” Bankrate Chief Financial Analyst Greg McBride told The Epoch Times in an emailed statement.

“Consumers are feeling it in the pocketbook at the grocery store and tenants in many parts of the country could get sticker shock at their next lease renewal,” he added.

McBride added that inflation concerns were weighing on consumer confidence, while predicting that supply chain bottlenecks “will be with us well into 2022, and with that, upward pressure on prices.”