Producer Price Inflation Sets New Record at 10 Percent, No Relief in Sight

Posted originally on the conservative tree house on March 15, 2022 | Sundance

The “Producer Price Index” (PPI) is essentially the tracking of wholesale prices at three stages: Origination (commodity), Intermediate (processing), and then Final (to wholesale). Today, the Bureau of Labor and Statistics (BLS) released February price data [Available Here] showing a dramatic 10.0% increase year-over-year in Final Demand products at the wholesale level.  This is the highest rate of inflation in the PPI ever recorded.

The single month increase in wholesale prices of 2.4% was driven by inflation built into the supply chain at every level that shows up in the final wholesale price.  Those price increases then get passed along to consumers along with the additional costs for warehousing, transportation and delivery.  I modified Table-A to take out some of the noise.

The January, December and November data was also revised significantly upward, and a sketchy footnote is included in the data. “Some of the figures … in this release may differ from those previously reported because data for October 2021 through January 2022 have been revised to reflect the availability of late reports and corrections.”   Remember that temporary drop in December, yeah, that’s wiped out now.

The reason the total demand inflation number is 0.8% is only because inflation in the service sector is lower than inflation in the goods sector.  Two reasons: (1) energy costs embed in goods first before services; and (2) when inflation on goods squeezes budgeted consumers, less services are demanded.

Unfortunately, there is nothing upstream in the supply chain and manufacturing pipeline to suggest that higher prices at the retail level are not coming.  The price of raw materials, and the wholesale energy costs to process those materials into finished goods, are still rising.  Factually, the recent massive increase in fuel and transportation cost is not included in this data.

You can see clearly in Table-B (again, cleaned up) the wave of inflation that took place in April through October 2021.  Inflation is backward looking, so when prices have already doubled in the previous year and the compounding price goes up another 35% this year, well essentially that’s another doubling when compared to 2020.   Put another way, raw materials (unprocessed intermediate goods) have tripled in price in the last two years.

In my estimation, the massive price increases the bureau quantified through January were the end of the first wave of massive inflation that CTH warned about last October.

“Do what you can do now to start preparing your weekly budget in ways you may not have thought about before.   Shop sales, use coupons, look for discounts and products that can be reformulated into multiple meals or multiple uses.   Shelf-stable food products that can be muti-purposed with proteins is a good start. Consider purchasing the raw materials for cleaning products and reformulate them yourself to avoid these massive increases in petroleum costs.” [October Warning]

The recent announcement of price increases we have discussed, from food producers specifically (Kraft-Heinz, Proctor and Gamble, etc.), in combination with massive fertilizer and farming costs for future yield, is the second wave that has yet to be fully quantified.  The second wave of retail inflation, only just beginning to arrive now in the February results, will extend throughout the spring.

Next month, March data reported in April, the second wave of inflation data should carry the first big jumps in gas and diesel prices.  For ordinary people, this next round of food inflation will be focused predominantly in the ‘Fresh Foods‘ categories.  Fresh produce, vegetables and fruits have short life cycles, and rapid increases in transportation costs hit that segment fast and hard.

On the positive side, our victory gardens are going up in value, very quickly.   A few backyard growing boxes can generate an easy $200 to $500/month in fresh produce as the price of ordinary row crops at the store starts to double and triple.  Mature citrus trees are worth their weight in gold right now.


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