Tipsheet

Another Terrible Inflation Report Just Hit As Markets Flounder

Spencer Brown
Spencer Brown  |  June 14, 2022 9:15 AM

Following last week's disaster of a Consumer Price Index reading for May that showed inflation surpassed consensus estimates to rise a full percentage point and bring the year-over-year inflation to 8.6 percent, costs for producers rose 0.8 percent in May — meeting expectations but nearly double April's 0.5 percent increase — for a 10.8 percent year-over-year increase. 

Measuring costs for producers — fuel, packaging, raw materials, and more — PPI continues to measure double-digit inflation upstream from consumers due to all-time high gas prices, a supply chain in shambles, skyrocketing energy prices, and burdensome regulations.

Even though the May report shows producer inflation coming off of its all-time high reached in March, the double-digit year-over-year number and newly increased monthly read shows that relief from runaway inflation is not imminent and prices are continuing to trend in the wrong direction.

As the Bureau of Labor Statistics explained in its release, "the index for final demand goods moved up 1.4 percent in May, the fifth consecutive rise" and more than 70 percent of the increase "can be traced to a 5.0-percent advance in prices for final demand energy." 

Among those items, 40 percent of May's increase "can be attributed to an 8.4-percent advance in the index for gasoline" as "prices for jet fuel, residential natural gas, steel mill products, diesel fuel, and processed young chickens also moved higher." On the flip side, beef and veal fell 9.5 percent, and iron and steel crap prices also decreased.

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Meanwhile, the PPI read shows that final demand services were up 0.4 percent in May after decreasing by 0.2 percent in April. "Over half of the broad-based advance can be traced to a 2.9-percent rise in prices for final demand transportation and warehousing services," BLS noted. Some 30 percent of the increase for final demand services was driven by "prices for truck transportation of freight, which rose 2.9 percent."

It feels like beating a dead horse at this point, but when the Producer Price Index rises, the Consumer Price Index is usually right behind it. CNBC reiterated as much Tuesday morning: "The data is significant in that prices at the wholesale level feed through to consumer prices, which are running at their highest levels since December 1981." Despite claims in March and April that inflation had peaked, the May CPI and PPI prove that it, to the detriment of Americans, has not. 

The PPI release also follows Monday's stock crash that saw the last of market gains made since Biden took office wiped away as the White House reversed its position of less than one month ago to say that the administration is "really" aware of the financial hit stocks have delivered to Americans.