All the stimulus sends inflation higher

All the stimulus sends inflation higher

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The question stays with everyone’s mind: Is inflation a temporary sugar glow of stimulus or is it here to stay?

The U.S. producer price index, which measures sales prices for goods and services, climbed 1% in March on a seasonally adjusted basis, the Bureau of Labor Statistics announced Friday. It was a stronger rise than in February and larger than economists expected.

Prices for finished goods have risen by the largest amount since the government took the specific measure in 2009.

The biggest driver was a sharp 8.8% rise in petrol prices.

Production price inflation stood at 4.2% year-on-year, the largest increase since September 2011, almost a decade ago.

“While this is a surprise for consensus and our forecasts, it is not too unexpected to see much stronger prices for goods,” given the high demand and global issues in the supply chain as economies reopen, he said. Citi (C) economist Andrew Hollenhorst in a note to clients.

Inflation has become the folly of the moment. Investors are worried that sudden price increases fueled by pent-up consumer demand could force the Federal Reserve to rethink its monetary policy as the economy recovers. The central bank dismissed this concern, saying price increases would only be temporary as the economy returned to normal.

Despite the reassurance, Wall Street is worried about a sudden rate hike to counter suddenly high inflation.

Although these concerns had a tight grip on the stock market a few weeks ago, investors were calmer on Friday.

The ten-year treasury bond, an indicator of interest rate expectations, was only slightly higher at 1.64%. That was enough to steer the tech-heavy Nasdaq Compound (COMP) index a little lower. But the broader stock market remained in a record high, with the S&P 500 (SPX) gain enough field to get on track for another record.
“Yet, with the supply chain bottlenecks and the broad reopening of the economy, the Fed is likely to continue to sit on its hands with the policy as it waits to see if the recent pickup will have the power beyond this year,” he said. said. Wells Fargo (WELLS FARGO) economist Sarah House.

In other words, you should not worry about prices getting out of hand.

Inflation is a complicated calculation because it is a process, not a single economic event. To make matters more confusing, there are varying degrees of inflation, with PPI being just one of them.

Another is the CPI, or consumer price inflation, which measures price changes for another set of goods and services. The CPI data for March are available next Tuesday and economists surveyed by Refinitiv expect a 0.5% increase.

There is also an index of spending on personal consumption, often called the Fed’s preferred measure of inflation. The PCE index for March is at the end of the month.

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