U.S. Producer prices accelerate sharply in July

U.S. Producer prices accelerate sharply in July

*The Producer Price Index for final demand rose 1.0% in July, lifting its yr/yr rise to 7.7%, while the core PPI for final demand excluding food, energy and trade services also rose 1.0%, lifting its yr/yr rise to 6.2% (Chart 1). The six-month annualized increases in the PPI for final demand headline and core are 10.3% and 7.7%, respectively, clearly indicating acceleration (Chart 2). The PPI for intermediate demand is accelerating even more rapidly, suggesting that the pipeline for inflation is building. If aggregate demand remains strong, as we have been forecasting, then businesses will have flexibility to raise product prices along their supply chains and to consumers.

*The PPI for final demand for goods rose 0.6% in July, and 0.9% excluding food and energy, boosting their yr/yr increases to 14.9% and 7.5%, respectively, while the PPI for final demand for services rose 1.1%, lifting its yr/yr rise to 5.8% (Chart 3). Within this category, the PPI for final demand for transportation and warehousing rose 1.7%, lifting its yr/yr rise to 11.8% (Chart 4).

*The Bureau of Labor Statistics’ old methodology provides a rich historical context for the acceleration of the PPI. Under the old methodology, the PPI for finished goods excluding food and energy has accelerated significantly—it has risen 6.8% annualized in the last six months, lifting its yr/yr rise to 4.3%. Excluding a temporary jump during the financial crisis, it is at the highest level since 1989 (Chart 5). The PPI for intermediate goods excluding food and energy has risen at a 30% annualized pace in the last six months, lifting its yr/yr rise to 20.6% (Chart 6). This is the highest level since the first oil shock in 1973-1974.

*The acceleration of the PPI and high CPI are not surprising to us and entirely consistent with a wide array of anecdotal evidence. Pressures on production costs will remain, as businesses must raise production to meet strong demand and replenish depleted inventories while dealing with supply bottlenecks and labor supply shortages. Unprecedented monetary and fiscal stimulus are expected to generate sustained strong growth in aggregate demand. Some of the price increases reflect supply bottlenecks; however, more and more, the mounting inflation pressures at the producer and consumer levels are taking on characteristics of traditional cyclical inflation generated by excess stimulus rather than temporary blips that will conveniently dissipate.

Chart 1: PPI Final Demand – Total and Core

Chart 2: Core PPI (6-month annualized vs. yr/yr)

Chart 3: Final Demand – Core Goods vs. Services

Chart 4: Final Demand Transportation and Warehousing Services

Chart 5: PPI – Finished Goods less food and energy (old methodology)

Chart 6: PPI – Intermediate Materials less food and energy (old methodology)

Mickey Levy, mickey.levy@berenberg-us.com

© 2021 Berenberg Capital Markets, LLC, Member FINRA and SPIC

Remarks regarding foreign investors. The preparation of this document is subject to regulation by US law. The distribution of this document in other jurisdictions may be restricted by law, and persons, into whose possession this document comes, should inform themselves about, and observe, any such restrictions. United Kingdom This document is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers. Copyright BCM is a wholly owned subsidiary of Joh. Berenberg, Gossler & Co. KG (“Berenberg Bank”). BCM reserves all the rights in this document. No part of the document or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without the BCM’s prior written consent. Berenberg Bank may distribute this commentary on a third party basis to its customers.

Member FINRA & SIPC
This email and any files or attachments transmitted with it may contain confidential or privileged information and are intended solely for the use of the intended recipient. If you are not the intended recipient, please do not copy, retain, disclose or use any part of the message or its attachments. Please notify the sender immediately by return email and destroy or delete any copies. Dissemination or use of this information by anyone other than the intended recipient is unauthorized and may be illegal. Communications by email cannot be guaranteed to be secure or error-free. Emails and their attachments are subject to being intercepted, becoming corrupted, getting lost or delayed, or may contain viruses. Therefore, neither the sender nor Berenberg Capital Markets LLC (BCM) accepts any liability for any errors or omissions in the content of this message or problems in its transmission, including those arising as a result of its transmission over the internet.
BCM does not assume liability for the correctness and completeness of all information given and/or attachments contained herein. The provided information has not been checked by a third party, especially an independent auditing firm. BCM explicitly points to the stated date of preparation. The information given can become incorrect due to passage of time and/or as a result of legal, political, economic or other changes. BCM does not assume responsibility to indicate such changes and/or to publish an updated document. Any document(s) or attachment(s) is meant exclusively for institutional investors and market professionals, but not for private customers. It is not for distribution to or the use of private investors or private customers.
In light of upcoming regulatory changes, please be informed that BCM will continue to share information with you until unsubscribe@berenberg-us.com receives your termination/deletion request. For more information about the General Data Protection Regulation (GDPR) and our privacy policies please refer to https://www.berenberg-us.com/legal-notice. BCM reserves all the rights in this communication. No part of this communication or its content may be rewritten, copied, photocopied or duplicated in any form by any means or redistributed without BCM’s prior written consent.
The information contained herein and sourced may have been adopted from various news sources, for example, Bloomberg, Reuters, Street Account and various other sources. BCM does not claim accuracy, completeness, timeliness, suitability, or otherwise regarding all the information on the securities, stock markets, or developments referred to within. On no account should the Content be regarded as a substitute for the recipient procuring information for himself/herself or exercising his/her own judgments. BCM is not responsible for any recipient(s) use of this information. This Content is not a solicitation or an offer to buy or sell any of the securities contained herein. This information does not constitute a recommendation or take into account the particular investment objectives, financial situations, or needs of clients. Clients should consider whether any advice or recommendation in this Content is suitable for their particular circumstances and, if appropriate, seek professional advice, including tax advice. The price and value of securities which may be referred to in this Content and the income from them may fluctuate. Past performance is not a guide to future performance, future returns are not guaranteed, and a loss of original capital may occur. Fluctuations in exchange rates could have adverse effects on the value or price of, or income derived from, certain securities.