By Dave Allen for Discount Gold & Silver
The government’s Producer Price Index for March, out today, showed that wholesale prices out and out declined from February – a possible sign, some say, of further cooling in prices in the coming months.
Axios’ Courtenay Brown and Neil Irwin say the latest numbers highlight a shift in America’s inflation dynamics – namely, falling energy prices earlier this year, which is putting downward pressure on overall inflation.
The PPI, which is a measure of the change in the cost of suppliers’ goods and services, fell 0.5% in March after a flat reading the month before.
The index is up 2.7% year-over-year through March (PPI peaked at more than 11% last June).
A good chunk of last month’s decline is a result of plunging energy prices that fell 6.4% in March (they’ve been rising again since then). Food prices rose 0.6%, after three straight months of declines.
Economist Bill Adams at Comerica says, “PPI surprised to the downside, but its details show the release is unlikely to bring the Fed off of the inflation fighting warpath.”
That’s a sentiment shared by others. Over two-thirds (68%) of CME Fed futures traders see another 25-basis point rate hike announcement at the end of the next FOMC meeting on May 3rd.
Adams explained, “March’s slowdown was concentrated in goods prices, especially energy goods.
“By contrast, core services prices are still running hotter in year-over-year terms than they were between last April and January.”
Speaking of the Fed…
Brown and Irwin point to a bit of tongue-and-cheeking by Fed officials over the past year, especially Fed chair Jerome Powell.
They say he’s been gradually “making more explicit acknowledgments that a recession may result from the [Fed’s] monetary tightening. Now, the subtext has become the text.”
Fed staff are now anticipating a “mild recession” later this year as their baseline forecast, followed by a 2-year recovery, according to the minutes of the FOMC’s last meeting in March.
At the same time, Fed officials projected that the headline unemployment rate will rise by a full percentage point by the end of the year – something that’s happened previously only during a recession.
The Fed raised interest rates at that meeting anyway – by 25 basis points – and, again, appear poised to rinse/repeat in May.
Yes, hope springs eternal that, in Brown and Irwin’s words, “Immaculate Disinflation” will swoop in and save the day.
Yet, they say persistent inflation coupled with the ongoing banking turmoil make an Alice in Wonderland scenario look more far-flung than it was just a few months ago.
Economist Matt Colyar at Moody’s Analytics warned, “…the uncertainty caused by the sudden (banking) crisis threatens to kick off a slower-burning, potentially more pernicious dynamic.”
On the other side of the podium, White House press secretary Karine Jean-Pierre said at press briefing yesterday, “Recent economic indicators are not consistent with a recession or even a pre-recession.”
That’s disappointing but certainly not surprising, given the growing certainty that her boss, the president, will be running for reelection.