Tuesday, May 17, 2022

Producer prices see the biggest annual boom on record, with worrying inflation problems

Producer prices rose above expectations in May, recording their biggest 12-month rise and exacerbating broader inflation problems, as higher production costs tend to fall to consumers.

According to a release from the Department of Labor (pdf), for the 12 months ending in May, the producer price index (PPI) rose by 6.6 percent, the highest number in the history of the series, dating back to 2010. Economists investigated by Investing.com expected a 6.3 percent increase in the final measure of the PPI.

Producer prices, excluding food, energy and trade services – a measure often preferred by economists because they exclude the most volatile components – rose by 5.3 per cent in May from a year earlier. It was also the largest increase since the Labor Department began tracking the number in 2014.

Energy prices increased by a seasonally unadjusted 46.6 percent over the year in May, goods progressed 11.1 percent, and food 4.4 percent, the data showed.

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Producer prices are seen as a leading indicator of consumer price inflation, which accounts for the largest share of total inflation. Although increased data on manufacturing prices suggest that consumers are likely to see more prices rise, the Federal Reserve has repeatedly said it believes consumers’ price increases are “short-lived”, expecting inflation to eventually return to two percent of the central bank. average target.

The upward pressure on prices is “caused by this artificial shutdown of the economy, which should never have happened”, according to Lance Roberts, chief investment strategist at RIA Advisors. In an interview with NTD Business, Roberts said the government created this “pressure cooker” by compressing economic activities during the pandemic.

“Now they’re going to be released at once, and unfortunately it’s really going to put the Fed in a box,” he said. He referred to the pressure facing Fed officials to raise interest rates if inflation does not weaken and continues to rise.

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Investors are keeping a close eye on the Federal Reserve’s two-day meeting, which ends on Wednesday, after which officials must issue a policy statement that will examine clues as to when the Fed can turn back from its easy start. money policies. As part of its crisis support measures for the economy, the Fed kept interest rates close to zero and made monthly asset purchases of about $ 120 billion.

So far, Fed officials, led by President Jerome Powell, have said rising inflationary pressures are short-lived and that ultra-easy monetary institutions will remain so for some time to come.

However, some economists have warned that inflation has now replaced high unemployment and deflationary pressures as the biggest risk to the economy, while urging the central bank to start drawing a possible policy shift to declining asset purchases and rising rates.

Emel Akan contributed to this report.

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Nation World News Desk
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