The U.S. Bureau of Labor Statistics reported that the producer price index surged 0.8 percent in May to clock in at a record 6.6 percent inflation rate for the year, the highest since the BLS began calculating the PPI in 2010.
The index measures the prices that manufacturers/companies pay in producing consumer goods and services. It often is used as a future indicator of retail prices.
If companies are paying higher prices today, they likely will pass those costs onto the consumer tomorrow.
The economy already is facing a retail inflation rate of 5 percent — the highest since 2008. The BLS also reported its key “all items index” is trending up frighteningly quickly — the fastest rate since 1992.
Consumer Spending Reduction Creates Perfect Storm
In a companion report, the U.S. Census Bureau announced that consumers spent 1.3 percent less in May than they did in April. Analysts were expecting a 0.6 percent increase.
This decrease will almost certainly compound increased manufacturing costs to further drive up retail prices in the near future, especially as new orders for manufactured durable goods increased $5.7 billion or 2.3 percent in May. Manufacturers were expecting consumers to increase spending, not decrease.
Manufacturers will incur additional costs if they must pull back on production.
The BLS report also noted that the majority of May’s increase lay in the price of goods, not services, indicating that labor was not driving the increased cost of doing business. The recent jump in commodity prices certainly supports this understanding.
Gasoline is up 60 percent, copper is up 22 percent, lithium is up 91 percent and steel is up 16 percent from this time last year, according to Trading Economics — all of which point to higher costs to manufacture consumer products.
Biden’s Silence Is Deafening
Despite presiding over the worst inflation, by some measures, since 1992, President Joe Biden has said very little to address the legitimate concerns of Americans.
The Hill reported that “Biden administration officials are insisting that the recent inflation spike will be temporary.”
And Federal Reserve Chair Jerome Powell still believes inflation is a long way off, despite the unambiguous numbers.
“We will not raise interest rates preemptively because we fear the possible onset of inflation,” Powell said Tuesday during a House of Representatives hearing, according to Reuters.
“We will wait for evidence of actual inflation or other imbalances.”
The Hill reported Republican Sen. Mike Crapo of Idaho spoke in blunt terms and pointed out the havoc inflation will have in making interest payments to service the national debt, currently at a staggering $28.4 trillion — a full quarter-million dollars per taxpayer.
“If inflation expectations become unanchored, which no one can credibly claim cannot happen, the resulting increased interest rates can turn federal debt service costs into budget busters,” Crapo said.
Federal spending stands at just under $7 trillion so far this year, with only half that amount covered by tax revenue. Interest payments on the debt alone account for $401 billion.
With that high of a debt, near-zero interest rates and no intention to even try to reign in federal spending, inflation may be the only solution, which would be devastating to millions of people’s real income and retirement savings.
Founder and CEO of Compound Capital Advisors Charlie Bilello released a simple chart that starkly shows how severe America’s inflation rate is compared to other countries. The U.S. is nestled in between Poland and South Africa.
Global Inflation Rates… pic.twitter.com/G302ciygxS
— Charlie Bilello (@charliebilello) June 25, 2021
The PPI is important because it shows where inflation is headed. Breaking records in this game is never a good thing.
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