The inflationary trend in the United States is still very much alive and well.
The Producer Price Index (PPI) – which measures prices that businesses receive for their goods and services – surged 8.6 percent in September from the same period a year ago. That’s the biggest jump on records dating back to 2010.
But the annualised rate of wholesale inflation measures current prices against an economy still very much struggling in September 2020.
On a month-over-month basis, producer prices rose only 0.5 percent in September. That was lower than many were expecting and the lowest month-over-month increase this year.
Helping to keep a lid on the PPI headline number were prices for services, which increased just 0.2 percent in September from the month before. That, too, marked the slowest monthly gain this year.
A big contraction in prices for airline travel amid a surge in the Delta variant of COVID-19 helped keep a lid on services prices last month.
Meanwhile, the big driver of the jump in wholesale inflation last month was energy prices, which are currently on an upward tear, thanks to global shortages of oil, natural gas, and coal.
US final demand for energy in September rose 2.8 percent – which accounted for a full 40 percent of the broad-based advance in producer prices.
On a more granular level, prices of gasoline (petrol) rose 3.9 percent last month.
Strip out volatile food and energy, and so-called “core” producer prices increased just 0.2 percent in September from the previous month – the smallest jump this year.
When goods producers and service providers are faced with higher prices, they often pass those costs on to consumers. On Wednesday, the US Department of Labor reported that consumer prices rose 0.4 percent in September from the month before and 5.4 percent over the past 12 months – matching a 13 year high in annualised inflation hit in June and July.
Inflation has become a hallmark of the US economic recovery from last year’s COVID lockdowns, fed by a combination of demand-pumping stimulus, supply chain bottlenecks and shortages for raw material and labour.
On Wednesday, President Joe Biden announced that the largest port in the US – the port of Los Angeles – will operate 24/7 to help clear bottlenecks and ease supply chain constraints.
While a little bit of inflation is a good thing for an economy because it incentivises consumers to buy goods and services now, rather than sit on their wallets in expectation of prices dropping, too much inflation can be deeply destructive if it triggers a vicious upward price spiral.
The Federal Reserve has been adamant that it believes the current inflationary pressures that have characterised the economic recovery from COVID-19 as “transitory”.
But on Wednesday, minutes from the Fed’s last policy-setting meeting in September said that though the “staff continued to expect that this year’s rise in inflation would prove to be transitory”, that recently inflation indicates that “supply constraints were putting a larger amount of upward pressure on prices than previously anticipated.”