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Corporate Margin Squeeze Coming As Producer Prices Soar 0.8% On Expectations Of 0.2%

Tyler Durden's picture


Following concerns that China will be unable to funnel liquidity into its slowing economy due to latent inflation, the last thing the world needed was to learn that inflation, in this case Producer Prices, was still running at a blistering pace in the US. Alas, that is precisely what it got after September PPI printed up 0.8% from the month before (following the unchanged print in August) and 6.9% YoY. The number was above even the highest expectation from Wall Street strategists (consensus was 0.2%). And while PPI ex food and energy was up just 0.2%, try telling that to those 99% of the population whose income is barely sufficient to buy the, you guessed it, food and energy, which rose by 0.6% and 2.3% respectively. The biggest concern is the immediate impact on margins: producers’ rising costs likely to lead to further margin shrinkage “as firms choose to absorb increasing costs rather than pass them along to consumers,” says Bloomberg economist Joseph Brusuelas. Don't expect much respite in the CPI report to follow shortly.

Some amusing observations:

Finished foods:  Prices for finished consumer foods climbed 0.6 percent in September, the fourth consecutive monthly increase. Accounting for over eighty percent of the September advance, prices for fresh and dry vegetables increased 10.0 percent.


Intermediate foods:  The index for intermediate foods and feeds climbed 0.9 percent in September, the fourth straight advance. A 3.2-percent increase in prices for prepared animal feeds accounted for over eighty percent of the September rise in the intermediate foods index.


Crude foods:  The index for crude foodstuffs and feedstuffs fell 0.9 percent in September. From June to September, prices for crude foods moved up 2.9 percent following a 1.4-percent increase for the 3-month period ending in June. A major factor in the September monthly decrease was a 7.4-percent decline in the fluid milk index. Lower prices for slaughter hogs also contributed to the crude foods decrease.

Much more in the source.


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Tue, 10/18/2011 - 08:46 | 1784642 oogs66
oogs66's picture

transitory bitchez :)

Tue, 10/18/2011 - 09:02 | 1784696 Dr. Richard Head
Dr. Richard Head's picture

Targeted inflation is the m.o. of the Federal Reserve.  Too bad the target is everyone's sphincter. 

Tue, 10/18/2011 - 09:11 | 1784715 BrocilyBeef
BrocilyBeef's picture

What do we all have in common? Why do we all flock here?

Tue, 10/18/2011 - 09:19 | 1784739 Snidley Whipsnae
Snidley Whipsnae's picture

Must be good news ... DJ futures down only 11


Tue, 10/18/2011 - 09:28 | 1784769 Ruffcut
Ruffcut's picture

I'm pissed. My beer went up a buck. I can't drink any cheaper swamp piss than busch light. DAMN YOU BENNY!

Tue, 10/18/2011 - 09:53 | 1784823 duo
duo's picture

I've pretty much gave up beer drinking.  When Old Milwaukee and Schlitz are $6 a six-pack (up from $3 two years ago) it's time.

Wine, on the other hand, is about the same price as it was 3-4 years ago.  Most vinyards are privatly owned and source grapes from local co-ops, most breweries are corporations that have to buy grains from the CME/COMEX and must feed an army of parasitic executives.  Hmmmmm

Tue, 10/18/2011 - 08:59 | 1784644 DormRoom
DormRoom's picture

global stagflation, from input costs, cost push inflation, from commodity bubble, from ETF financializing commodities.  leverage ETFs cause price distortion using future options mechanism, and misallocation of capital.  future adjustments, after ETF liquidity collapses, destroy markets.


case study: natural gas & UNG (ETF)

Tue, 10/18/2011 - 08:53 | 1784649 SheepDog-One
SheepDog-One's picture

What happened to all the bulls lecturing us 'poor, hapless bears' I miss them and I hope theyre OK these days. All that fattened up dumb Kobe bull beef on the barbie I bet Wall St is enjoying it.

Tue, 10/18/2011 - 08:55 | 1784667 HelluvaEngineer
HelluvaEngineer's picture

They're getting juiced up, ready to sky the market at the opening bell!

Tue, 10/18/2011 - 09:00 | 1784677 dwdollar
dwdollar's picture

They are quietly waiting through the next few days so they can come back and say "I told you so" or "I sold at the high why didn't you?" depending on the outcome.

Tue, 10/18/2011 - 08:59 | 1784686 SheepDog-One
SheepDog-One's picture

OH ok lol.

Tue, 10/18/2011 - 08:49 | 1784652 scatterbrains
scatterbrains's picture

but will the Berstank hit the print button while inflation is still only running at 8% ? I'm thinking he better hurry before we get up into the high teens.. it will be much harder for him to justify at that point.

Tue, 10/18/2011 - 08:51 | 1784657 SheepDog-One
SheepDog-One's picture

Bernanke whiffed a 3 at-bats to print....Europe threatened to print and ones printing anymore, printing fools no one.

Tue, 10/18/2011 - 09:01 | 1784689 scatterbrains
scatterbrains's picture

but I-pod prices are unchanged, whew!  I almost panicked for a minute there.

Tue, 10/18/2011 - 09:05 | 1784701 SheepDog-One
SheepDog-One's picture

YEA no doubt! ITune downloads still .99 cents.....WHEW no inflation in what matters!!

Tue, 10/18/2011 - 09:15 | 1784727 Snidley Whipsnae
Snidley Whipsnae's picture

I ate my I pod... not bad.

Tue, 10/18/2011 - 09:13 | 1784725 Snidley Whipsnae
Snidley Whipsnae's picture

They are still printing US Ts out their azz... Creating more debt and throwing it into the super black hole... From one hole to another, do not pass go, do nothing to help the Main St economy or create jobs.

Go OWS! Send some members to occupy DC! Catch carp from the reflecting pool and fry them in front of the Fed! Eat every damn thing in DC that is edible! Er, you can't eat gold but they don't have anything but paper. Bring some live stock to eat the grass and shrubs. Make a statement the azz hats won't soon forget.

Tue, 10/18/2011 - 08:51 | 1784656 YesWeKahn
YesWeKahn's picture

There is no inflation, trust me, my name is Bernanke.

Tue, 10/18/2011 - 08:51 | 1784659 Irish66
Irish66's picture

Can't we give stragegists a proper name?

Open to ideas.

Tue, 10/18/2011 - 08:52 | 1784661 TradingJoe
TradingJoe's picture

Me think they desperately whish to print but they need higher dollar and lower PMs and Markets! Eh?!

Tue, 10/18/2011 - 08:56 | 1784670 SheepDog-One
SheepDog-One's picture

Who is that supposed to fool anymore? 

Tue, 10/18/2011 - 08:54 | 1784665 ArkansasAngie
ArkansasAngie's picture

When you start messing with people's bread ... things get serious.

Bernanke's cake is getting stale and green is transitioning to black as mold flourishes.

QE3+++ is going to result in riots.

Washington ... you had better decide real quick whose side you are on.

Tue, 10/18/2011 - 08:57 | 1784672 SheepDog-One
SheepDog-One's picture

There will be no QE3, false flag attacks will result in riots and WW3 is kicking off in Iran....prepare accordingly.

Tue, 10/18/2011 - 10:27 | 1784980 MachoMan
MachoMan's picture

Are you serious?  How many bullets have to whiz by your head to determine the people on the other end of the gun barrels have chosen the other side?  How many decades have to go by where law after law is passed against the best interests (long term) of the nation before your suspicions start to arouse?  How many times do we have to "vote the bums out" before we decide that it is the entire process that needs revision, not just its practitioners?  [for a recent example, see democrats' wins in the mid 2000s under the rally cry of bringing the troops home...  still waiting on that one...  or where we elect an anonymous figurehead solely on the basis that he promises change (without really contemplating what change exactly)...  still waiting on that one too].

Some rats will jump ship...  others will play on the deck as the ship sinks.  Tis just the nature of rats.  Ultimately, we make the system, whether by being proactive or by apathy.

Tue, 10/18/2011 - 08:55 | 1784668 tmosley
tmosley's picture

When did milk prices go down.  They were just as high as ever last time I bought some.

Tue, 10/18/2011 - 08:59 | 1784682 SheepDog-One
SheepDog-One's picture

You didnt catch that? There again milk prices just went down....back up again. Just have to be THAT fast!

Tue, 10/18/2011 - 08:56 | 1784669 jdelano
jdelano's picture

as I said a few days ago---> trading range.  We kissed the top and now all headlines will service the plunge back down to 1100.  If it happens by Friday, expect the next installment of EFSF snakeoil to launch another rally back up, though the risk of a breakout to the downside on this round is greater.   

Tue, 10/18/2011 - 08:58 | 1784676 HelluvaEngineer
HelluvaEngineer's picture

Yep.  I'll be taking half off the table if we get back down there, although this sucker is way overdue for cracking to the downside.

Tue, 10/18/2011 - 08:59 | 1784671 devo
devo's picture

Isn't it more likely that producers will use hidden inflation (i.e. shrinking the size of their goods yet charging the same price) rather than take margin hits or pass the cost (ppi) in real price?

Most Americans will not realize if a box of Cheerios is .8% smaller...

Tue, 10/18/2011 - 09:39 | 1784792 JohnG
JohnG's picture

They have been for months.

Tue, 10/18/2011 - 08:58 | 1784674 junkyardjack
junkyardjack's picture

Well no more margin stories, let's hear about growth 

Tue, 10/18/2011 - 08:58 | 1784675 firstdivision
firstdivision's picture

This is bullish.....for inflation/food/energy/metals. 

Tue, 10/18/2011 - 08:58 | 1784678 Caviar Emptor
Caviar Emptor's picture

Biflation, bitchez. Biflation

Tue, 10/18/2011 - 08:58 | 1784679 devo
devo's picture

I'm surprised gold is down so much given this data.

Tue, 10/18/2011 - 09:01 | 1784691 SheepDog-One
SheepDog-One's picture

Nothings shocking, and we havent seen anything will markets react when they set off a nice little tactical nuke on Occupy I wonder? That will be some morning I bet.

Tue, 10/18/2011 - 09:02 | 1784694 ArkansasAngie
ArkansasAngie's picture

The FX market is the easiest market for the Fed to manipulate.

Tue, 10/18/2011 - 09:00 | 1784688 jbc77
jbc77's picture

With all the ggod news this morning complete with awesome earnings reports it's easy to see why the futures are recovering and looking to open green. Even BAC is trading up in pre-market. Now that the sarcasim is out of the way - what the fuck is going on with this broken ass market? Slew of horrible news and futures recover? WTF?? How the fuck do you trade this broken market? Good news is bad and bad news is good?

Tue, 10/18/2011 - 09:02 | 1784697 SheepDog-One
SheepDog-One's picture

Trade it? Oh I got far clear of this joke a while ago.

Tue, 10/18/2011 - 09:09 | 1784711 jdelano
jdelano's picture

lol--just saw that myself.  Another screwball pitch--inflation bad for dollar, good for equities....oh yeah, and lest we forget Apple is going to singlehandedly employ all of China's indigent peasents and everyone at OWS.    This day just got more interesting/complicated.  

Tue, 10/18/2011 - 09:02 | 1784693 Caviar Emptor
Caviar Emptor's picture

If you want a better picture of biflation to come: 

UK CPI up to blistering 5.2% reported this morning, just as UK GDP hit 0.1%


Lotsa luck!

Tue, 10/18/2011 - 09:04 | 1784699 apberusdisvet
apberusdisvet's picture

The funeral for Keynesianism has been delayed until Bernanke gets out of rehab; meanwhile the corpse is rotting.

Tue, 10/18/2011 - 09:04 | 1784700 Caviar Emptor
Caviar Emptor's picture

And the Trifecta Biflationary news roundup for this morning would not be compete without China: 

China CPI 6.1% as GDP growth slows to 9.1%


Perfect trifecta: US, UK, China all the same pattern: CPI UP! GDP DOWN! 


Lotsa Luck

Tue, 10/18/2011 - 09:07 | 1784703 SheepDog-One
SheepDog-One's picture

No need to worry about markets, theyre dead, trading at 1999 levels. These markets are the most irrelevant thing around today.

Tue, 10/18/2011 - 09:08 | 1784705 lizzy36
lizzy36's picture


Twenty years of stagnating wages, highest unemployment rate in almost 30 years, and +6.9% Y/Y PPI.

Gasoline alone up almost 30% y/y.

Anyone (here's looking at you Charlie Evans) that says what US really needs is controlled higher inflation, doesn't understand how a march or #OWS turns into a revolution.

Macroeconomis really has FUCKED UP the world.

Tue, 10/18/2011 - 09:12 | 1784721 Gief Gold Plox
Gief Gold Plox's picture

"The planet's fine, the People are fucked" --George Carlin

Tue, 10/18/2011 - 09:08 | 1784706 Sutton
Sutton's picture

Just as Ben was astonished by the housing collapse, he is going to be shocked by rip roaring consumer prices.

Depose him now.

Tue, 10/18/2011 - 09:09 | 1784709 dcb
dcb's picture

Tyler, you just don't understand the economics. this is good for the economy (according to bernanke) by increasing inflation it will cause people to spend instead of save. Of course this is wrong, but since it doesn't fir to justify their insane monetary poicy it won't happen.

Tue, 10/18/2011 - 09:11 | 1784714 MFL8240
MFL8240's picture

And Gold and Silver are down?  This is about as insane as it comes.

Tue, 10/18/2011 - 09:12 | 1784720 spanish inquisition
spanish inquisition's picture

The baton is about to be passed. When the oldsters talk about penny candy and feeling rich holding a nickle. You can tell kids "There use to be a place you could go and everything on a special menu was only a dollar"

Tue, 10/18/2011 - 09:13 | 1784723 blindfaith
blindfaith's picture

“as firms choose to absorb increasing costs rather than pass them along to consumers,” Is this a joke? That may be true for the micro and very small businessman, but not corporate america which is still feeding on 401K contributions, they simply put less in and charge the same as before.

10 pounds of potatoes is now 8 for the same price, that is a20% increase.

One pound is now 12 ounces, same price, this is 25% increase.

Numbers in fraction ounces and odd numbers of grams, so easy to stand and caculate at the store.

The only thing I see cheaper now is

Tue, 10/18/2011 - 09:18 | 1784728 Caviar Emptor
Caviar Emptor's picture

STAGflation is a misleading term which way underestimates and downplays just how malignant the current economic situation really is. It implies actual economic growth at the same time as inflation which is higher than expected. The term was coined in the 1970s to describe the situation we faced back then: GDP was blistering hot compared with now, unemployment was WAY lower, housing prices were on the rise and most importantly: Median incomes were rising fast and were considered the culprit for inflation.

Today's situation is Radically different. Night and day. 

There is negative real growth. Even headline GDP is at stall speed. Median incomes have declined by 9.8% since December, 2007 in real terms. Housing prices have declined about 25-30%. Government spending is contracting (as opposed to rising fast in the 1970s). And CPI is actually WAY lower than in the 1970s. And unemployment levels are way higher and structural in nature. 

But it's the RElative CPI increase, taking into account declining median incomes and personal net worth, that tells the true story here. The relative rate of inflation is BLISTERING. Just at a time when the economy is slowly contracting as evidenced by the unemployment level and real GDP. 

That's Biflation. And it's roots explain the causes of the economic ills we face today. Until we face up to this reality we'll never get close to a cure. 

Tue, 10/18/2011 - 10:34 | 1785011 MachoMan
MachoMan's picture

Which way does it break?  Stagflation and biflation are simply transitionary periods that lead into the two broader categories...  (essentially defying the gravity of one or the other categories for a short period of time).  My question, the real meat of the coconut, is whether the biflationary period is followed by massive inflation or deflation and for how long?

Tue, 10/18/2011 - 11:17 | 1785266 Caviar Emptor
Caviar Emptor's picture

It's deiificult to predict the long term future because of unpredictable political events. But the current situation is now the default modality and it can go on for as long as it goes on. One nuclear explosion could change all that however

Tue, 10/18/2011 - 14:11 | 1786036 MachoMan
MachoMan's picture

I'm asking for your prediction...  I realize the difficulty in predicting anything tomorrow...

Tue, 10/18/2011 - 09:17 | 1784731 monmick
monmick's picture

Now we know why GS missed expectations... their production costs are raising faster than their revenues!

Tue, 10/18/2011 - 09:17 | 1784734 undercover brother
undercover brother's picture

everyone knows inflation is bullish for stocks.........right?

Tue, 10/18/2011 - 09:21 | 1784745 buzzsaw99
buzzsaw99's picture

but, but, the food stamp crowd will riot if prices go down, hank paulson said so.

Tue, 10/18/2011 - 09:29 | 1784770 ItsDanger
ItsDanger's picture

Ive heard this for so long: “as firms choose to absorb increasing costs rather than pass them along to consumers,”   Is this based on fact?  If true, how long can these companies 'absorb' the costs and not increase prices.  This claim has been repeated far too often.  Its seems like lame BS to me at this point.  Unless it has documented support behind this claim, I would surmise that anyone who uses it is a liar.  Why is it being used?  To substantiate the need for low rates and cheap money as long as possible.  I think many people would be surprised to learn how much damage inflation can reap on a billionaire's portfolio.

Tue, 10/18/2011 - 09:33 | 1784780 Mike2756
Tue, 10/18/2011 - 09:38 | 1784789 Bold Eagle
Bold Eagle's picture

Only economists can believe that inflation is good for economy. It's a pain for everybody else: producers, consumers, manufacturers. Economy cannot grow if real incomes are shrinking.

Tue, 10/18/2011 - 09:58 | 1784845 LongBallsShortBrains
LongBallsShortBrains's picture

Inflation is also bad for the holders of debt.... But not for the debtors. Any big debtors out there?

Tue, 10/18/2011 - 11:07 | 1785201 JPM Hater001
JPM Hater001's picture

It's sad to say but as some of my food storage comes up on expiration-giving it to the food shelves is resulting in a 20% greater tax deduction than it would have if I had just taken it down last fall.

Now that is a sad commentary.

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