From Reuters Nowadays:
U.S. producer prices accelerated in June, leading to the largest annual increase of more than 10-1/2 years, indicating that strong demand driven by the economy’s recovery from the COVID-19 pandemic has strained the supply chain and inflation may remain Remaining high.
The US Department of Labor released a report on Wednesday, following the news on Tuesday that the consumer price increase in June was the largest in 13 years. However, there are signs that inflation is approaching its peak. Basic producer prices rose moderately month-on-month in June.
This is the comparison between CPI and PPI (finished product).
figure 1: The monthly month-on-month annualized inflation rate of the CPI (blue) of all urban consumers, goods and services and the PPI (pink) of all manufactured goods, %. Source: BLS and author’s calculations.
This is the core counterpart (note that I have drawn the Y axis to the same scale in both graphs).
figure 2: CPI (blue) of all urban consumers, goods and services (excluding food and energy) and PPI (pink) of all manufactured goods (excluding food and energy), in %. Source: BLS and author’s calculations.
Is PPI ahead of the US CPI? Clark (1995) Provides a skeptical view that PPI provides additional system predictive capabilities.
Some analysts predict that the recent increase in crude oil and intermediate product prices will pass through the production chain and generate higher consumer price inflation. Although simple economics suggests that such transfer effects may occur, more complex reasoning and careful consideration of the PPI and CPI data structures indicate that any transfer effects may be weak. Consistent with this more complex analysis, empirical evidence also shows that the production chain only weakly links consumer prices to producer prices. PPI changes sometimes help predict CPI changes, but it is impossible to do so systematically. Therefore, the recent rise in some producer price indices does not in itself indicate that the CPI inflation rate will rise.
Corporal wait. (2002) Using a more formal diversified approach to conclude that for the G-7 economies, PPI is indeed ahead of CPI.
Interestingly, although the PPI unexpectedly rose (and the core of the PPI was in line with expectations), the 5-year inflation balance of payments fell.
image 3: The five-year inflation break-even point is calculated as the five-year treasury bond yield minus the five-year TIPS yield (blue). The five-year break-even point is adjusted by the inflation risk premium and the liquidity premium per DKW, both in% unit. source: Feed through FRED, Ministry of Finance, Kunshan After D’amico, Kim and Wei (DKW) visited 7/7 and the author’s calculations.
