U.S. producer inflation hits biggest annual increase in more than 10-1/2 years Reuters

Lucia Muticani

Washington (Reuters)-U.S. producer prices surged in June, setting their biggest annual increase in more than 10-1/2 years, indicating that strong demand driven by the economic recovery from the COVID-19 pandemic has led to tight supply. Inflation may still remain 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.

Fed Chairman Jerome Powell stated in preparation for a speech at a congressional hearing on Wednesday that “inflation has increased significantly and may remain high in the next few months before slowing down.” Powell has long believed that high inflation It is temporary. This is the point of view of economists and the White House that I most agree with.

The producer price index for final demand rose 1.0% last month after rising 0.8% in May. Service costs rose 0.8%, accounting for nearly 60% of the PPI increase in June. The service industry grew by 0.6% last month. Commodity prices rose 1.2% after rising 1.5% in May.

In the 12 months ending in June, PPI soared by 7.3%. This is the largest year-on-year increase since November 2010, following a 6.6% increase in May.

Due to the lack of willing workers, rising commodity prices and rising labor costs are driving inflation at the factory gates. Due to supply chain issues, inventory levels are very low, which makes it easy for manufacturers to pass on higher costs to consumers. Prices in industries at the center of economic reopening have risen sharply, although there were signs in June that inflation was spreading to other industries.

Economists surveyed by Reuters had predicted that the PPI in June would increase by 0.6%, a year-on-year increase of 6.8%.

The U.S. stock market opened higher, and Powell’s remarks ignited the hope that the Fed will stick to its loose monetary policy. The dollar fell against a basket of currencies. The price of U.S. Treasuries rose.

Peak inflation

The U.S. Central Bank lowered its benchmark overnight interest rate to near zero last year and injected funds into the economy through monthly bond purchases. Since the beginning of the US pandemic in March 2020, this ultra-loose monetary policy stance, COVID-19 vaccination and nearly $6 trillion in government relief are stimulating demand.

But inflation may be close to its peak. Excluding the volatile components of food, energy and trade services, producer prices rose by 0.5%. The so-called core PPI rose 0.7% in May. In the 12 months ending in June, the core PPI accelerated by 5.5%. This is the largest increase since the government launched the series in August 2014, following a 5.3% increase in May.

Mahir Rasheed, an American economist at the Oxford Economics, said: “We believe that with the easing of the base effect, this will be the peak of wholesale inflation, but the continued friction between supply and demand will cause Prices will continue to be strong in 2021 and 2022.” New York.

The Fed has stated that it can tolerate higher inflation for a period of time to offset the years when inflation falls below its 2% target, which is a flexible average. The Fed’s preferred inflation indicator, the core personal consumption expenditure price index, rose 3.4% in May, the largest increase since April 1992.

The reason for the spike in service costs last month was a 2.1% increase in trade services, which measures changes in profit margins received by wholesalers and retailers.

The 20% service growth was due to a 10.5% increase in the profit margin of the retail of automobiles and parts. The prices of machinery, hardware, building materials and supplies, room rental, professional and commercial equipment, and passenger transportation also rose.

Wholesale energy prices rose by 2.1%. Food prices rose by 0.8%. Wholesale core commodity prices rose 1.0% after rising 1.1% in May. Some PPI components, which constitute the core PCE price index, performed weakly last month.

The cost of healthcare fell 0.1% after rising 0.2% in the previous month. Portfolio management fees fell 0.3% after rising 2.0% in May. Airfare prices rebounded 2.5% after falling 1.3% in May.