PPI: FOMC is in the Dark on Inflation

We have no inflation. It has to be that way since our Fed governors keep telling us that there is just no inflation or that it is only transitory.  Sorry, but it seems that these same Fed members just never go out anywhere and never buy a single thing.  This morning’s data is showing a sharp rise in wholesale inflation and the belief has to start growing that companies will finally be able to start passing on higher costs to Joe Consumer.

Producer Prices for February rose by 1.6% in the nominal PPI, but the ex-Food & Energy PPI somehow managed to show a gain of only +0.2%.  Bloomberg had estimates of 0.7% for nominal PPI and 0.2% for core PPI.

The breakdown showed a 3.3% boost in energy prices and a 3.9% jump in food prices.  Raw materials rose by 3.4% and intermediate prices were up 2%.So long as you don’t drive and eat your prices are hardly changing.

If you use the year-over-year measurement, core PPI was up by about 1.8%.

Is the FOMC in the dark about in inflation or is it in denial?  Either way, this is not very comforting considering that the government is also buying intermediate bond maturities by the billions each and every week.  The only good news is that wholesalers have an awful time trying to pass down price hikes to the retail level.

The problem is that we have heard all through the most recent earnings season that margins are getting squeezed due to materials and inputs seeing price hikes.  When it comes to whether companies want to see their stock prices drop or whether they will pass on higher costs, our bet is that price hikes are going to win.

JON C. OGG