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: