Inflation alarm Bells keep ringing
Inflation alarm bells keep ringing
On Sept. 10, the Bureau of Labor Statistics released its Producer Price Indexes report for Aug. 2021. It showed "the largest advance since 12-month data were first calculated in November 2010."
Moreover, "The Producer Price Index for final demand increased 0.7% in August, seasonally adjusted… On an unadjusted basis, the final demand index rose 8.3% for the 12 months ended in August."
According to Investopedia, "The producer price index focuses on the whole output of producers in the United States. This index is very broad, including not only the goods and services purchased by producers as inputs in their own operations or as investment, but also goods and services bought by consumers from retail sellers and directly from the producer."
Conversely, "The consumer price index targets goods and services bought for consumption by urban U.S. residents." In other words, the producer price index measures inflation from the perspective of producers while the consumer price index measures inflation from the standpoint of consumers.
Although both indexes are necessary to accurately gauge inflation, most economists focus on the consumer price index.
This is understandable, as the consumer price index is more reflective of the immediate concerns of consumers. However, the producer price index is also important and worth analyzing because it serves as a future indicator of inflationary pressures, which will eventually manifest in the consumer price index.
According to the Aug. PPI report, "Leading the August increase in the index for final demand, prices for final demand services rose 0.7%. The index for final demand goods moved up 1.0%… For the 12 months ended in August, the index for final demand less foods, energy, and trade services rose 6.3%, the largest advance since 12-month data were first calculated in August 2014."
Even worse, “For the 12 months ended in August, the index for processed goods for intermediate demand climbed 23.0%, the largest 12-month increase since jumping 23.6% in February 1975."
As the data show, producers are being pounded with rising costs, which they will pass on to the consumer via higher prices for goods and services.
This does not jive with what officials in the Biden administration are saying about inflation being a temporary blip.
In July, President Biden downplayed inflation while pitching his multi-trillion-dollar Build Back Better plan, stating, "We also know that as our economy has come roaring back, we’ve seen some price increases. Some folks have raised worries that this could be a sign of persistent inflation. But that’s not our view. Our experts believe and the data shows that most of the price increases we’ve seen are — were expected and expected to be temporary."
Biden added, "My Build Back Better plan will be a force for achieving lower prices for Americans looking ahead … These steps will enhance our productivity — raising wages without raising prices. That won’t increase inflation. It will take the pressure off of inflation … So, if your primary concern right now is inflation, you should be even more enthusiastic about this plan."
Apparently, Biden does not understand the basic law of supply and demand.
When the government showers the economy with trillions of dollars, the value of each dollar declines. When this phenomenon occurs in the aftermath of an unprecedented nationwide economic shutdown, you get the worst-case scenario of more dollars chasing fewer goods and services. This typically produces a vicious inflationary spiral, wherein price, wage, and cost increases build on each other.
However, according to the Biden administration, modern monetary theory, wherein the government can print an endless amount of money without regard to the national debt and annual deficit, is somehow immune to inflation.
Of course, modern monetary theory would in fact have the opposite effect, likely leading to hyperinflation. The bottom line, no matter what the Biden administration claims, is that inflation is here, getting worse, and far from temporary or transitory.
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