Our economy is full of leading and limping indicators. The Consumer Price Index (CPI) is a lame indicator. It tells Americans how much more they are already paying for a basket of goods that the Bureau of Labor Statistics thinks most Americans buy. A forward-looking indicator could inform Americans about the trend of inflation along the way. The producer price index, which has been monitored since 2010, measures the wholesale prices paid by producers of goods and services for their raw materials and inputs. On Wednesday, the PPI for March was announced at 11.2% year over year. It is the highest recorded to date.
CPI was released on Tuesday, showing a year-over-year increase of 8.5%. Speaking to a crowd in Iowa, President Joe Biden assured Americans that he would take all possible executive action to ease the economic burden of inflation. White House Press Secretary Jen Psaki told them Tuesday’s release did not capture the impact of the administration’s efforts in March. However, the PPI tells a different story.
According to Carol Rothauthor of The war against small businesses and an “emerging” investment banker, the rise in PPIs could mean further price increases. “PPI is a wholesale inflation rate, which means it looks at inflation related to the inputs that go to finished goods and services. So what you see from manufacturers and manufacturers now has not yet been fully passed on to the companies that operate as “intermediaries or consumers. This indicates that at least at the core level of inflation may well rise again next month.”
Roth also warns that the ongoing economic impact will continue even when inflation peaks. “Even when we hit a peak, remember that it’s a peak in growth, not a peak in prices, and it does not regret the inflation we already have. So these extra costs are the ones that households are going to struggle with. for a while, especially since wage growth has not kept pace with inflation. “
Her point about pay is put in sharp relief by Charlie Bilello, Founder and CEO of Compound Capital Advisors. According to his analysis of Tuesday’s release, cumulative inflation wiped out wage growth of 11.1% since February 2020. So Americans are already paying more for goods and services with dollars worth the same as at the beginning of the pandemic. Based on Roth’s explanation of PPI, Americans may soon buy more expensive goods, making their dollars even less worthwhile.
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Biello’s analysis also shows that some of the highest inflation rates in the last 12 months have been in energy costs. Gasoline has risen 48%, gas supplies have risen 21.6%, and electrical energy has risen 11%.
Roth notes that while these increases hurt when we fill up our gas tanks, they also hurt us when a transportation company fills a semi- or an airplane. “In terms of the impact on energy, it affects not only the consumer directly, but all aspects of goods and services. From material input to transportation, these costs weigh heavily throughout the supply chain.” Petroleum can also be a major driver in increasing PPIs, as over 6,000 products require it for at least one input. Everything from roof shingles to prosthetic adhesives use some petroleum compounds. It will also affect food prices as tractors, combine harvesters and other agricultural equipment require fossil fuels to drive.
The only action Biden could have taken to ease the economic pressure on many Americans was to open the tap for our own energy production. With the stroke of a pen, he was able to repeal a series of decrees restricting production, which he signed in the first days of office. Instead, he and members of his administration shrug their shoulders and ask Americans to buy an electric vehicle. Perhaps they missed that the price of new cars rose 12.5% in the past year. Used cars have risen in price with a 35% increase. Even a 2018 Prius can be out of reach for most families.
The president’s Build Back Better agenda will blow more dollars into an overheated economy if a significant portion of it moves forward. Still, Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer have indicated they would like to revive it. A few days of fuel released from the strategic reserves is not a long-term solution and makes America less secure. The Biden administration is doing nothing to address the root causes of inflation, making life difficult for most Americans. And leading indicators warn that things will only get harder for some time to come.