Screaming Hot Producer Prices
chart via brian jacobs
>
After too many months of inflation data telling anyone with a barely functioning cerebral cortex that significant price inflation was at hand, this month seems to have jarred the denialists into a very belated recognition of reality.
As the delightful chart porn above shows, the costs of materials for food, energy and finished goods is up significantly.
Bloomberg notes:
"Prices paid to U.S. producers rose more than twice as much as forecast in January, pushed up by higher fuel, food and drug costs, signaling inflation may keep accelerating even as growth slows.
The 1 percent increase followed a 0.3 percent drop in December, the Labor Department said in Washington. The median forecast in a Bloomberg News survey of economists was for a 0.4 percent gain. Excluding food and energy, so-called core wholesale prices climbed 0.4 percent, the most in almost a year."
Here's the money quote from BLS:
"From January 2007 to January 2008, the index for finished goods moved up 7.4 percent. Over the same period, prices for finished energy goods climbed 22.6 percent, the index for finished consumer foods rose 8.3 percent, and prices for finished goods other than foods and energy advanced 2.3 percent. For the 12 months ended January 2008, the index for intermediate goods increased 8.8 percent, and prices for crude goods jumped 31.3 percent."
Jeebus! Finished energy products, +22.6%! Finshed consumer goods, +8.3%
Lag this . . .
>
Sources:
Producer Price Indexes - January 2008
http://www.bls.gov/news.release/ppi.nr0.htm
Producer Prices in U.S. Increase More Than Forecast
Bob Willis
Bloomberg, Feb. 26 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aOQJ_vlxPtvE&
Tuesday, February 26, 2008 | 11:33 AM | Permalink
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Comments
Well I live in a world where I don't need to consumer oil/gas and I don't eat, so I'm fine. Obviously, margins can also stay at record levels since inflation isn't a concern for corporations.
Posted by: Lloyd | Feb 26, 2008 11:40:36 AM
This can only end badly for the economy if prices for needed goods such as food and energy continue to rise. As consumers continue to tighten their belts, many other companies will struggle to sell their goods/services.
Posted by: Mike M | Feb 26, 2008 11:40:41 AM
Inflation! What inflation??
Posted by: Trackerman | Feb 26, 2008 11:42:55 AM
Mr Ritholtz,
Can you comment on this? I saw an analyst from JP Morgan on Bloomberg this morning (an irish guy) and he said "without wage inflation, there can be no inflation"
My thought was that at some point this is not true. Or if the wages do stay flat you get impoverishment and recession.
What say you?
Posted by: Northern Observer | Feb 26, 2008 11:48:34 AM
Does that really require an answer?
Posted by: Barry Ritholtz | Feb 26, 2008 11:50:35 AM
Posted by: Northern Observer | Feb 26, 2008 11:48:34 AM
____
You get stagflation.
Posted by: Marcus Aurelius | Feb 26, 2008 11:53:54 AM
There is still some possibility that this will feed through more as collapsing profit margins than higher consumer prices but the spillover looks almost impossible at this point.
The Fed should now begin to talk about paradigm shifts in commodity prices. That is, how does the Fed see the possibility that we are shifting to a new higher equlibrium, if such a shift is underway when do they expect it to be complete and lastly what do they feel is appropriate monetary policy in the face of such a shift.
For the US perspective the problem is not so much that money supply and hence nominal demand are growing rapidly but that commoditity supplies are effectively shrinking.
Should monetary policy exacerbate the growth effects by not loosening. Or, should we accept this shift. At the core of this argument is the question of "Why not Inflation?"
Is inflation bad in and of itself or because it is asssociated with sub-optimal growth and distortions in financial markets.
If its the latter, we continue to ease. If its the former, the we have to consider battening down all the hatches and suffering money that is tighter than we hoped in an environment of weakening credit.
Posted by: Karl Smith | Feb 26, 2008 11:54:00 AM
I think I'll coin a word:
Snagflation
Think ‘rusty nail’.
Posted by: Marcus Aurelius | Feb 26, 2008 11:55:50 AM
And in the face of all this discussion the market gets hijacked (again) to the tune of a hundred points.
When are people going to get "hip" to this???
This is what is really causing problems, not the lying or deceptive numbers....it's what is done to the market in the face of the news.
The damage being done will be monumental if it is not stopped.
Caveat Emptor should not be a strategy but it is rapidly replacing any rationale thought process. Look at today's headlines......we've got another bottom (the second in less than 24 hours)
The blatant juicing of the futures overnight or on any "bad news" is what needs to stop....
Ciao
MS
Posted by: michael schumacher | Feb 26, 2008 12:10:05 PM
Helicopter Ben is getting squeezed between that rock and that hard place, for sure.
Mr. Market is rallying before his next statement. Mr. Market has already priced in a .50 cut. But the inflation numbers are getting ugly.
Buy the hope sell the news?
Posted by: Mr. Obvious | Feb 26, 2008 12:16:12 PM
A lagging indicator is an indicator that tends to respond to an economic slowdown AFTER the slowdown has already started.
It has nothing to do with when the data is released vs. the measurement period.
In every recession in the last 45 years, the year over year change in CPI peaked after the reccession has already started.
You still haven't convinced me that it will be different this time.
SO what is it going to be? Global reccesion or accelerating prices?
Posted by: Vermont Trader.. | Feb 26, 2008 12:20:40 PM
Larry Kudlow was seen recently wheeling the visibly lifeless body of a young blond girl in an office chair in downtown New York When asked by a nyc cop "WTF was going on" he replied " This is Goldilocks and I am taking her to pick up her $600 Stimulis Package check... I know this has very little to do with Stagflation, Just thought a good laugh might help..
Posted by: mw | Feb 26, 2008 12:24:07 PM
So anyone know what the all time record is for consecutive up bars on a 10 minute SPY Chart? Right now we're at 10 and counting. Shameless, LOL.
Posted by: Al Czervik | Feb 26, 2008 12:25:52 PM
Anyone know what "happy news" just hit the tape???
Another bailout we are supposed to be celebrating?????? for the 10th time now??
let's push the market up right before the piggies report the latest "surprises"
all too easy to see..
Ciao
MS
Posted by: michael schumacher | Feb 26, 2008 12:26:50 PM
Vermont Trader, you are correct. We are currently experiencing a transition from stagflation to deflation. As debt destruction continues, the money supply will contract, and a HARD recession will happen. This will be deflationary. If the high consumption American becomes a serious saver (highly likely), look out!
Posted by: Mike M | Feb 26, 2008 12:27:24 PM
As of 12:20pm, the Dow is up 143 points on good news that:
1) Home prices plunge at record rate in 2007
2) Producer prices up sharply in January
3) Feb consumer confidence slumps to 5-year low
4) January foreclosures up 57 percent in year
Thank you Plunge Protection Team! You're so damn predictable you helped me hit a home run today with bases loaded! Keep up the good work!
Posted by: Prophet of Profit | Feb 26, 2008 12:29:02 PM
Hmmm! Such an "abnormal" inflation reading can't be good for assets prices. Something'll have be done about that.
Somehow, I get the weird feeling we'll need to dig even deeper into the BLS hedonic adjustments footnotes pretty soon.
Or maybe more stuff will be transfered from the in-inflation to the ex-inflation section.
As we had CDO and CDO-squared, we may end up with ex-ex-inflation, or outright exflation.
Sux2bBen right now.
Posted by: Francois | Feb 26, 2008 12:32:01 PM
al-
Just glad to see that I'm not the only person who sees that today, yesterday, friday....
It IS shameless and needs to stop.....all too easy to connect the dots back to the order flow. But they wouldn't want to do that....
Ciao
MS
Posted by: michael schumacher | Feb 26, 2008 12:35:18 PM
This is all awesome!
Fake-CPI above fed's comfort zone!
PPI at 26 year highs!!
Consummer Confidence at 75!
Property prices going down!
Most World economies slowing!
Oil hitting $101 today!
T-Yields risings again
Gold getting closer to $1000
...and yet! equity markets rally just because it is quarter-end for a few big boys/brokers?! Hail free markets!!
Posted by: N | Feb 26, 2008 12:39:07 PM
Prophet:
Yahoo News says it is because IBM annoucned a $15 billion share buy back plan. At those prices?
Posted by: Joe Klein's conscience | Feb 26, 2008 12:48:22 PM
Go gold! ya.
Posted by: Stuart | Feb 26, 2008 12:57:18 PM
This is a really tough spot for the Fed, as I suppose has been obvious for quite some time. They have no selective powers - they can pick 'forward' or 'reverse'. They picked 'forward' to bail out a selected part of the economy - which they really cannot effectively do. To control inflation they need to pick 'reverse'.
They can't win.
Posted by: wally | Feb 26, 2008 12:58:15 PM
Barry,
Is your spam filter looking for specific words? It wouldn't let me post my comment.
Donaldo
Posted by: Donaldo Rodrigues | Feb 26, 2008 1:02:07 PM
The fed cannot do much here, since the economy went global, raising rates is unlikely to have any real effect on the inflation in commodities, yet it would kill housing/the consumer. The fed is cutting in an effort (and who knows if it will be successful) to keep the US economy somewhat afloat and out of an asset deflation spiral.
Posted by: Andrew | Feb 26, 2008 1:02:26 PM
Look's like there really is another cut coming:
A top Federal Reserve official said Tuesday that the danger the U.S. economy will weaken further is a bigger worry than higher inflation, and the central bank has tools and is ready to do what it needs to respond to "difficult times."
"I do not expect the recent elevated inflation rates to persist," Fed Vice Chairman Donald Kohn said in a speech at the University of North Carolina at Wilmington.
"In my view, the adverse dynamics of the financial markets and the economy have presented the greater threat to economic welfare in the United States."
The recovery in shaky financial markets is likely to take time, and the correction in the beleaguered housing sector has further to go, Kohn said.
Although he expects recovery after a sluggish period, policy-makers must take into account the possibility of "very unfavorable developments," he added.
"We have the tools," Kohn said. "As Chairman Bernanke often emphasizes: We will do what is needed."
Posted by: Mr. Obvious | Feb 26, 2008 1:04:43 PM
