Inflation Finally Arrives — at Least at the Wholesale Level

On the headline PPI, Bloomberg and Dow Jones were both expecting only a 0.1% gain. Both consensus readings were also at 0.2% on the core PPI.

Producer prices for final demand rose by 1.4%, the largest gain in seven months. The big gain was in the price of services, up 7% — the largest gain in more than four years. Trade services rose 1.4% in March, but this had been down 1% in February.

As a reminder, the PPI is considered as wholesale inflation that businesses and the government have to pay for goods and services rather than what consumers pay. It generally takes two months, or even longer, before elevated producer prices are passed directly down to the consumer level.

Also note that the former PPI reading of finished goods would have been down 0.1% sequentially and up 1.7% from a year ago.

The Federal Reserve’s formal 2% price target for inflation has been missed on the downside for nearly two years now. Again, we think the people wanting inflation need to be careful what they wish for — as long as deflation is avoided.

ALSO READ: Is the Corporate Tax Rate Really Hurting the Economy at 35%?