PPI heightens inflation worries
PPI heightens inflation worries
Untitled DocumentProducer prices heighten inflation worries
The Producer Price Index, or PPI, was released this morning, and while this reading is often overshadowed by the Consumer Price Index and certainly the Fed’s favored gauge, the Personal Consumption Expenditures Index, this month it raises its own concerns.
The headline PPI was up a modest 0.2 percent in April, but that doesn’t reflect the continued surge in oil prices we’ve seen this month. In the past 12 months, the headline PPI has advanced 6.5 percent.
The core PPI advanced a troubling 0.4 percent this month and is up 3 percent year over year. Further, the year-over-year core PPI has increased for four consecutive months. Not a welcome development.
Inflation is clearly a central issue to the health of the economy, not just now but looking ahead to the next few years. So what can the Fed do about it? Here are some sobering comments from Joel Naroff, president of Naroff Economic Advisors, on the subject.
“The Fed’s tools are best suited to deal with inflation created by excess U.S. demand. That is hardly the case right now. If the commodity price increases are the result, at least in part, of surging foreign economies, then the only option the Fed has is to take out the sledge hammer and create a worldwide economic slowdown. I am not sure the Fed really wants to do that. And if some of the commodity price hikes are due to speculation, taking out the big guns would essentially wind up killing the victims. In the current circumstances the Fed may actually be limited in its ability to take effective action against the rise in inflation.”