Producer prices increased a staggering 9.7% for the year ending in January, according to a report on producer costs by the Bureau of Labor Statistics — meaning inflation hovered near the highest pace on record.
The high numbers in Tuesday’s producer price index report eclipsed predictions by forecasters and are near the highest in the gauge's 11-year history after the PPI rose by 9.8% in December.
The news came just days after a report for the month of January found consumer prices increased by 7.5% — the fastest annual rate in four decades. The inflationary pressures are adding to President Joe Biden’s mounting political concerns heading into the midterm elections.
The PPI gauges the wholesale prices of goods, which are inevitably passed down to consumers.
Over the past month, producer prices have increased by 1%, double the consensus expectations of a 0.5% jump.
SOARING INFLATION INCREASES PRESSURE ON POWELL AND FEDERAL RESERVE
Tuesday’s report will put fire to the feet of Federal Reserve officials who are planning to hike interest rates for the first time in years as early as next month in a scramble to contain inflation.
“Factories are producing more inflation than goods at this point, and with supply and labor shortages not going away, inflation is going to stay on the front burner of Federal Reserve officials’ concerns for now,” said FWDBONDS Chief Economist Christopher Rupkey. “Inflation shows no sign of stopping with today’s 1% print.”
The central bank sanctioned unprecedented measures to ease monetary policy after the start of the pandemic nearly two years ago. Those measures included lowering its interest rate target to zero and buying massive quantities of government bonds.
Now, the Fed is trying to catch up with the inflation readings by reversing the easy-money policies. Some Fed watchers are predicting a half-percentage-point rate hike at the monetary policy committee's March meeting rather than the typical quarter-percentage-point raise, which would essentially be the implementation of two rate hikes at once. It would be the first time the Fed has taken such an extreme move in more than two decades.
James Bullard, president of the Federal Reserve Bank of St. Louis, said he supports the half-percentage-point hike after last week’s report. Bullard is one of the officials who vote on Fed monetary policy.
“I’d like to see 100 basis points in the bag by July 1,” Bullard said. “I was already more hawkish, but I have pulled up dramatically what I think the committee should do.”
Goldman Sachs’s chief economist, Jan Hatzius, said in a report to clients last week that the central bank will likely opt for seven quarter-percentage-point hikes at consecutive meetings of the Federal Open Market Committee.
Even with the impending rate hike, no matter how aggressive, it will still take months for inflation to tamp down to a level digestible to average people who have watched their grocery and energy bills increase. While the Fed has control over the federal funds rate, it can’t resolve supply chain snarls adding fuel to the inflationary fire.
“When inflation pivots this spring, the price pressures will simply move from scalding to boiling,” Rupkey said. “The American public is losing confidence in Washington’s ability to rein in the upward spiral of prices, which is at risk of impoverishing the elderly living on fixed incomes and sapping the buying power of low to moderate-income workers.”
Inflation has been weighing on the Biden administration, as rising prices have dented the president's approval ratings and Republicans have bashed Democrats for their spending bills. A White House official told the Washington Examiner on Tuesday that fighting inflation is Biden's top priority, in addition to jobs and economic growth.
"We respect the Fed’s independence in achieving its dual mandate of full employment and stable prices, and, right now, it is especially important for Congress to move quickly, beginning this afternoon, to approve the President’s nominees to the Fed," the official said. "The President will continue to make progress on his three-part plan of addressing supply chain disruptions; lowering kitchen table costs with his Build Back Better agenda; and promoting more competition."
The Fed's target is for inflation to run at 2%, although it uses the personal consumption expenditure price index rather than the consumer price index or the producer price index as its gauge. While it remains high, PCE inflation is running a bit cooler at 5.8%.
https://www.washingtonexaminer.com/restoring-america/faith-freedom-self-reliance/inflation-hovers-at-9-7-in-producer-index-right-near-highest-on-record
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