Much hotter than expected CPI data for October stole the spotlight on Wednesday, but there was more bad news on the inflation front that received less attention.
The annual Producer Price Index (PPI) increase in October tied September’s record, as rising producer prices continue to undercut the “transitory inflation” narrative.
The PPI charted a 0.6% month-on-month increase with the annual rate up 8.6%. That tied last month’s record-setting rise in producer prices. If you annualized producer price gains so far this year, you get a PPI of 10%.
PPI for commodities skyrocketed 22.2% year-over-year. That was a 48-year high. The last time we saw a higher commodity PPI was November 1974.
The media tends to focus on consumer prices, but as Peter Schiff pointed out in his podcast, businesses ultimately have to recover the cost of production.
“Consumers should be concerned about the prices that producers pay. But they generally don’t start to worry until those higher costs get passed on to them in the form of higher prices.”
If you look at the PPI numbers for the year, there is nothing to suggest that what we’re experiencing is transitory.
“The idea that inflation is transitory is simply wishful thinking at best on the part of the Fed. Of course, if you look at it more suspiciously, you would say it’s just an outright lie.
Significantly, the PPI numbers are bigger than the numbers we’re getting in the CPI.
“There is clearly a pretty large gap between the prices producers are paying and the prices consumers are paying. … If anything is transitory, it’s that gap. I believe the producers are going to look to recoup what they lost in 2021 in 2022. But it’s not that prices are going to stop going up in 2022. They’re going to keep going up. It’s just that producers will be more likely to not only pass on the full extent of those price increases, but to catch up on the price increases that they should have imposed in 2021 but held off on because they were hoping that what they were witnessing was transitory.”
Peter said a lot of businesses were reluctant to raise prices initially. They didn’t want to have to roll them back later. There was also fear their competitors wouldn’t match the price increases. The strategy was to eat the price increases for a few months — ride out the transitory inflation storm and then move on.
“Once all of the producers in the market understand that these price increases are not transitory — in fact, not only are they not transitory, they’re going to continue, meaning that we’re not going to get relief from prior increases. The prices that went up in 2021 aren’t going to go back down in 2022. In fact, they’re just going to go up even more. Well, now all these companies no longer have any reason not to pass on these costs.”
In fact, we’re already seeing many businesses hiking prices. According to a November survey of 560 firms by Vistage Worldwide, 60% of small business owners have raised prices in the previous 90 days.
There is also upward price pressure on wages as workers demand raises to keep up with rising consumer prices.
“Because they’re going to the store. They’re going to be paying higher prices for everything they buy.”
People often claim prices are going up because costs are going up. But costs are prices. So, in effect, they’re saying prices are going up because prices are going up. This doesn’t make any sense, and it obscures the true source of inflation — Fed money printing.
“What makes all of these prices go up? It’s the central bank and all the money printing. It is the inflation that is responsible for the prices of everything going up.”
There is also the psychology of inflation. We’re seeing consumer inflation expectations on the rise. As a result, people will begin to buy things now instead of putting off purchases until later. They want to stock up before prices go up even more.
“The consumer fully expects inflation and therefore is going to try to prepare for that the best he can.”
This creates an inflationary spiral.
Meanwhile, you’ve got the Federal Reserve still pretending that this is not happening. The central bankers continue to insist inflation expectations are “well-anchored” at 2%.
“What idiot believes that inflation is still at 2%?”
The inflation genie is way out of the bottle. There is no way to put her back in again.
In this podcast, Peter also talks about the dollar, the possibility Lael Brainard will replace Powell at the Fed, Elon Musk and Tesla, and how the US tax structure should change to tax consumption instead of income.