Friday, February 16, 2024

Wall Streeters, media return to INFLATION WATCH. But 0.3% ain't much, and one-time factors mislead

Oh no! It's a high print for producer prices!

Wholesale prices rose more than expected in January, further complicating the inflation picture, according to a U.S. Department of Labor report Friday.

The producer price index, a measure of prices received by producers of domestic goods and services, rose 0.3% for the month, the biggest move since August. Economists surveyed by Dow Jones had been looking for an increase of just 0.1%. PPI fell 0.2% in December.

Excluding food and energy, core PPI increased 0.5%, also against expectations for a 0.1% gain. PPI excluding food, energy and trade services jumped 0.6%, its biggest one-month advance since January 2023.

The report comes just days after the consumer price index showed inflation holding stubbornly higher despite Federal Reserve expectations for moderation through the year. The CPI was up 3.1% from a year ago, down from its December level but still well ahead of the Fed’s goal for 2% inflation.
But when I went into the actual report, it made me think these inflation concerns are overblown. To start with, goods prices for businesses went down in January.
The index for final demand goods moved down 0.2 percent in January, the fourth consecutive decline. Most of the January decrease is attributable to a 1.7-percent drop in prices for final demand energy. The index for final demand foods fell 0.3 percent. Conversely, prices for final demand goods less foods and energy increased 0.3 percent.
Food and gas both went down in PPI for January? Seems like a good spot to me.

What caused the increase in the PPI was a 0.6% jump in the price of services.
A 2.2-percent increase in the index for hospital outpatient care was a major factor in the January rise in prices for final demand services. The indexes for chemicals and allied products wholesaling, machinery and equipment wholesaling, portfolio management, traveler accommodation services, and legal services also moved higher. In contrast, prices for long-distance motor carrying decreased 1.0 percent. The indexes for computer hardware, software, and supplies retailing and for engineering services also moved lower.
And no surprise that we might see big jumps in some of these things in January, because it’s when many people put in their new fee structures, and try to cash in for 2024.

It’s a similar story at the PPI step before final demand – processed goods down 0.2%, unprocessed goods up only 0.1%, but services up 0.5%. And I’ll add that the PPI report indicates tougher times for food distributors and farmers, as the prices they're receiving are often going down.
Leading the decline in prices for processed goods for intermediate demand, the index for electric power fell 2.1 percent. Prices for basic organic chemicals, gasoline, meats, prepared animal feeds, and lubricating oil base stocks also moved lower. In contrast, the index for inedible fats and oils jumped 23.3 percent. Prices for utility natural gas and for cold rolled steel sheet and strip also increased….

Leading the rise in prices for unprocessed goods for intermediate demand in January, the index for crude petroleum advanced 6.1 percent. Prices for slaughter steers and heifers; construction sand, gravel, and crushed stone; slaughter turkeys; and unprocessed finfish also increased. In contrast, the index for corn declined 6.5 percent. Prices for hay, hayseeds, and oilseeds; iron and steel scrap; and natural gas also moved lower.
Put this together, and it looks like price hikes that consumers may deal with in early 2024 would be the result of greedflation.

The only concern I have in this PPI report is that increase in crude oil prices, which has continued in the trading markets in February. That’s something which seems like to be reflected in the February CPI, even if it has little to do with actual supply-and-demand situations, and you can bet the “experts” will overreact if higher gas prices in February keep CPI above 0.2% for the month.

And lastly, I will once again ask “What’s wrong with 3% inflation anyway?” In 16 out of the 19 months between March 1983 and October 1984, the CPI rose by at least 0.3%, with 12-month inflation being up more than 4% for all of 1984. And unemployment was between 7% and 8% for all of that same year. Know what the economic message of the old first-term president running for re-election was back then?

Guess it's not where you are, but the direction you're perceived to be going, eh?

Now throw in all of Bill Clinton’s first term, from January 1993 through the end of 1996, with the 12-month CPI increasing between 2.5% and 3.4% for that entire time period. We also had more than 11 million new jobs, and things worked out well for that Dem in his re-election campaign.

So why should 0.3% increases in both CPI and PPI be such a concern in January 2024? And why should it be considered a drag on the current old guy running for re-election when more than 15 million jobs have been added in his term so far, and unemployment has stayed below 4% for more than a year? This is especially true when much of the CPI increase is due to a rental measure that will decline over the next 6 months, and when much of PPI’s increase is also due to one-time reasons.

Makes no sense, but Wall Streeters and Central Bankers seem to be the last people who think real wage growth and job growth among everyday Americans are a bad thing, if their costs go up by another 1%.
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