With this Inflation, What Will the Fed Do?

With this Inflation, What Will the Fed Do? by Wolf Richter – Wolf Street

Even the last doves are coming around to more rate hikes.

“In June, most of the rise in the index for final demand is attributable to a 0.4-percent advance in prices for final demand services,” said the Bureau of Labor Statistics in the release of its Producer Price Index data. The PPI and its numerous sub-indices measure inflation further up in the pipeline before it filters through to consumer prices.

Services account for 65.3% (“relative importance”) of the PPI. Energy prices soared, but they account for only 5.6% of the PPI. In the overall picture, services matter the most.

The PPI for “final demand” (as opposed to “intermediate demand,” which is further up the pipeline) jumped 3.4% in June compared to a year ago, the largest year-over-year increase since November 2011. This measure includes goods and services:

The PPI for final demand energy jumped 17.2% in June compared to a year ago. Note the deep plunge of the index during the Oil Bust. But for consumers, this was a “transitory” relief, to rephrase Yellen:

The PPI for final demand goods — includes energy but excludes services and has a relative importance of 33% — rose 4.3% from a year ago. May (+4.4%) and June marked the sharpest increases since December 2011:

The PPI final demand for goods without food and energy, which has a relative importance of 21.7%, rose 2.6% from a year ago, the largest year-over-year increase since March 2012:

Over the past few months, even the PPI for final demand services has begun to move higher. Due to its relative importance in the index of 65.3%, it matters! It jumped 0.4% from May to June and is now up 2.8% year-over-year. This and the March increase of 2.9% are the largest year-over-year increases in this data series going back to 2011:

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Wolf Richter

In his cynical, tongue-in-cheek manner, he muses on WOLF STREET about economic, business, and financial issues, Wall Street shenanigans, complex entanglements, and other things, debacles, and opportunities that catch his eye in the US, Europe, Japan, and occasionally China. WOLF STREET is the successor to his first platform… TP-Title-7-small-200px …whose ghastly name he finally abandoned in July 2014. Here’s the story on that. Wolf lives in San Francisco. He has over twenty years of C-level operations experience, including turnarounds and a VC-funded startup. He earned his BA and MBA in Texas and his MA in Oklahoma, worked in both states for years, including a decade as General Manager and COO of a large Ford dealership and its subsidiaries. But one day, he quit and went to France for seven weeks to open himself up to new possibilities, which degenerated into a life-altering three-year journey across 100 countries on all continents, much of it overland. And it almost swallowed him up.