A Producer Price Index Inflation Spike Is On The Way Too

Mish

As with the CPI, a PPI year-over-year inflation spike is baked in the cake.

Producer Price Index Month-Over-Month April 2020

  • PPI: -1.1%
  • 2020 Goods: -2.8%
  • Services: -0.4%
  • Energy: -17.3% 

Producer Price Index Month-Over-Month February 2021

  • April 2020 PPI: 0.5%
  • April 2020 Goods: 1.4%
  • April 2020 Services: 0.1%
  • Energy: 6.0%

Q: Why does Energy have such a small impact on the PPI?
A: The following chart explains. 

PPI Final Demand Weights 

PPI Final DEmand Percentage Weights 2021-02

Energy is 15.5% of goods but only 5.0% of the overall PPI. 

PPI Year-Over-Year 

PPI Final Demand Year-Over-Year NSA 2021-02

Producer Price Index Year-Over-Year April 2020

  • PPI: -1.5%
  • Goods: -5.2%
  • Services: +0.3%
  • Energy: -30.7%

Producer Price Index Year-Over-Year February 2021

  • PPI: 2.8%
  • Goods: 3.4%
  • Services: 2.5%
  • Energy: 5.5%

What's Going to Happen?

The year-over-year comparisons in March, April, and May are going to show huge percentage year-over-year jumps, especially April and May due to comparisons vs. the initial pandemic numbers in Spring of 2020.

Services will act as a bit of a stabilizer given they constitute 66% of the PPI, but the energy numbers are so huge they will have a very noticeable impact. 

Consumer Price Index Discussion

For the impact of Covid on the CPI, please see Inflation is Poised to Soar, 3% by June is "Almost Certain"

Mish

Comments (24)
No. 1-4
Eddie_T
Eddie_T

Energy costs are more elastic than some other necessaries, within certain limits. And energy price goes all over the place over the medium term. In general, people have cut way back on discretionary use of fossil fuels. I expect demand to fall further if prices stay high.

I have a hard time hating inflation since I built my financial house on the premise that it was inevitable and that I needed to plan for it. I just continue worry about the fragility of the entire system as asset prices skyrocket. But what is happening is something that was not unexpected....it’s just more of a wild ride than I like, at the moment.

Mish
Mish

Editor

Just got back to my room. Up all night photographing the Milky Way . This post was scheduled. Headed to bed.

Sechel
Sechel

Surprised this didn't happen earlier due to Trump' tariffs. Possible the Pandemic delayed it?

LostNOregon
LostNOregon

Just got back from the Bend, Oregon area. At night, there are so many stars it's difficult to see the constellations! I only had my binoculars and was trying to find the Andromeda Galaxy. Too many tall trees blocking the view. I will have to get out on the golf course next time to get a better view.


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