American Businesses See Largest Producer Price Surge Since Tracking Began
A diesel pump stands at a Royal Dutch Shell Plc filling station in Fairfax, Virginia, U.S., on Monday, March 14, 2011. Consumer confidence fell last week to the lowest level in a month as surging gasoline prices soured Americans' outlook about their finances and the economy. Photographer: Andrew Harrer/Bloomberg via Getty Images
Andrew Harrer/Bloomberg via Getty Images

Price levels for businesses just saw their largest-ever surge.

According to data released Tuesday by the Department of Labor’s Bureau of Labor Statistics, the Producer Price Index (PPI) — which tracks changes in input prices for businesses and other domestic producers — experienced a 6.6% year-over-year increase. According to the agency, the increases are the largest “since 12-month data were first calculated in November 2010.”

Producer prices rose by 0.8% from April — a rate that significantly exceeded Dow Jones’ forecast of 0.5%. In January, February, March, and April, the year-over-year increases in the PPI were 1.6%, 2.8%, 4.2%, and 6.2%, respectively. 

The report was released as Wall Street looks to the Federal Reserve’s pending decision on interest rates. Although the central bank has previously committed to aggressive quantitative easing through 2023, rising inflation could lead the Board of Governors to scale back their expansion of the money supply in order to maintain price stability.

Indeed, the Consumer Price Index (CPI) — which measures price levels for household goods — climbed by 0.6% last month in a 5% year-over-year increase.

The Bureau of Labor Statistics explained that much of the PPI’s surge was attributable to rising lumber, fuel, and food costs:

A major factor in the May advance in prices for processed goods for intermediate demand was the index for lumber, which increased 15.5 percent. Prices for diesel fuel; utility natural gas; structural, architectural, and pre-engineered metal products; ethanol; and beef and veal also moved higher.

Amid inflationary pressures, the rise in the PPI is worrying business leaders.

As The Wall Street Journal reports:

For years economists paid minimal attention to the PPI since it tends to be volatile and doesn’t always move in sync with CPI, said Veronica Clark, economist at Citi.

That has changed since January, she said. That month, the PPI surged 1.3% versus the previous month and has stayed elevated since. The pickup at the start of the year presaged the stronger-than-expected rise in consumer prices in April and May.

Bill Adams — senior economist at PNC Financial Services Group — remarked that “PPI matters much more than it usually does because inflation matters much more than it has for years.”

“We haven’t had an inflationary shock like this in a decade,” he explained. “We know we’re in the middle of an inflationary shock but what we still don’t know is how bad it is. That’s a big part of what we’re looking to these inflation data for.”

Other analysts — including a team of top economists from Deutsche Bank — believe that rising inflation is far more than temporary in nature.

“We worry that inflation will make a comeback,” wrote the Deutsche economists in a recent report. “Few still remember how our societies and economies were threatened by high inflation 50 years ago… It may take a year longer until 2023 but inflation will re-emerge.”

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