14 Jun 2011

Producer Price Update

Inflation, Krugman 6 Comments

According to today’s release, the seasonally-adjusted increase in finished goods for May was 0.2 percent. Nothing to get excited over.

Even so, just for the record, the year-over-year change (i.e. May 2010 to May 2011) for the three categories is as follows:

Finished goods: +7.3%
Intermediate goods: +10.3%
Crude goods: +22.8%

The BLS report on the Consumer Price Index comes out tomorrow. Krugman is rooting for a negative reading.

6 Responses to “Producer Price Update”

  1. Desolation Jones says:
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    Consumer Price Index day is my favorite day of the month!

    If there’s indeed a negative reading, will the Austrian theory of hyperinflation change to:

    Commodities-> consumer goods-> calm before the storm-> wages spiral?

  2. bobmurphy says:
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    I guess we’ll never know, DJ.

  3. AP Lerner says:
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    Astute analyst recognize there is no correlation between PPI and CPI.
    Astute analysts also recognize labor, not raw materials, drive costs.

  4. Mario Rizzo says:
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    If bank credit is still depressed why is the “Austrian” effect on higher order goods continuing?

    • bobmurphy says:
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      I think because people are investing the new funds directly in commodities etc., and also that the expectations of higher prices are driving people into some types of higher-order goods as protection. You agree that the short-term interest rate really is lower because of the Fed’s actions, right? So that has to be distorting investment decisions.

  5. Joseph Fetz says:
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    Just to add to what Bob said, I personally think that this must necessarily distort the “investment decisions” of those with “discretionary funds”. If you have extra funds, you aren’t necessarily going to purchase consumer products merely due to inflation expectations, rather you are going to spend those funds on goods that a higher in the order of production due to inflation expectations. This is most certainly a time preference shift if I have ever seen it, which explains why there hasn’t been dramatic increases in the CPI. People are purchasing higher order goods rather than lower order goods primarily because they are expecting inflation, but that their time preference is much lower.