The smell of stagflation is strong this morning, because just as retail sales missed badly on both the headline and the core prints as noted separately, and as BofA predicted last night, PPI came in a hotter than expected, with both headline PPI (0.2%) and PPI ex food, energy and trade (0.4%) coming in higher than the expected prints of 0.1% and 0.2% respectively after a mixed picture from yesterday's CPI print.
The index for final demand less foods, energy, and trade services climbed 0.4 percent in February, the same as in January. For the 12 months ended in February, core core PPI, i.e., prices for final demand less foods, energy, and trade services increased 2.7%, the largest rise since 12-month percent change data were available in August 2014.
More troubling, on an unadjusted basis, the final demand index increased 2.8% for the 12 months ended in February, clearly suggesting that input costs are starting to impact business who are unable to pass on rising prices to consumers, and instead are forced to shrink their profit margins as a result.
A breakdown of all key PPI components is below.
Looking at final demand services, a major factor in the February rise of 0.3% in prices was the index for traveler accommodation services, which climbed 3.7%. The indexes for automotive fuels and lubricants retailing, food retailing, bundled wired telecommunications access services, hospital inpatient care, and airline passenger services also moved higher. In contrast, margins for machinery, equipment, parts, and supplies wholesaling fell 1.4 percent. The indexes for apparel, jewelry, footwear, and accessories retailing and for cable and satellite subscriber services also decreased.
Separately, final demand products declined by 0.1%; leading the February decrease in the index for final demand goods, prices for fresh and dry vegetables dropped 27.1%. The indexes for gasoline, light motor trucks, diesel fuel, and liquefied petroleum gas also moved lower. Conversely, prices for primary basic organic chemicals jumped 7.2 percent. The indexes for chicken eggs, residential natural gas, and beef and veal also advanced.
What happens next will be key: with input prices rising, whether companies are able to pass on these higher costs to end consumers will determine if profits margins shrink, or if inflation will truly blossom as consumer prices follow the surprising move higher in PPI, resulting in a brief burst of stagflation before the next recession.
Comments
Here is an article that explains why inflation is not hitting the Federal Reserve's target:
https://viableopposition.blogspot.ca/2018/02/solving-federal-reserves-inflation.html
The Fed, like most central banks, is extremely concerned about any deflationary pressures in the economy.
… The smell of stagflation is strong this morning
I was wondering what was stinking up the joint when I woke up. I'm glad it wasn't me. ;-)
Looney
In reply to Here is an article that… by NickyGall
"I love the smell of stagflation in the morning!"
In reply to … by Looney
let's see...
core prices rising
interest rates rising
pension funds look over the horizon at becoming net sellers of equities
ah...it's nothing.
In reply to "I love the smell of… by Newsboy
Nothing a little control P cant fix anyway....
In reply to let's see… by Antifaschistische
Look at the bright side..
...once "earnings" go negative, the more you lose, the better the ratio gets.
100 (stock price) / -1 (earnings) = P/E of -100
100 (stock price) / -2 (earnings) = P/E of -50
the last thing you want is 100/-.1 = -1000....so go big, or go home!!
In reply to … by Looney
Lubricants higher just as we're about to get the royal shaft
I love the smell of stagflation in the morning.
I noticed your comment after I entered mine. "Great minds think alike", or all watched Apocalypse Now, or something.
In reply to I love the smell of… by P.K.Snosage
Damn, and I thought that was the Taco Bell from last night.
In reply to I love the smell of… by P.K.Snosage
Only ZH could take a dead-on-consensus reading and turn it into a doom porn headline. All that's missing is "since Lehman".
You take the blue pill - the story ends, you wake up in your bed and believe whatever you want to believe... [/morpheus]
… unless the Blue Pill has “Pfizer” on it. ;-)
Looney
In reply to You take the blue pill - the… by buzzsaw99
Gold Drops...
Where is this deflation I keep hearing so much about? It's not companies lowering prices because the shit they are producing is not selling. That's called supply and demand.
My food items are rising. Not because there is more demand, either. Their input prices are rising. Not a result of demand once again. They are rising because of a problem with the currency.
Now that is INFLATION.
my wages are deflating does that count..
In reply to Where is this deflation I… by ejmoosa
So why are equity futures still up? The royal double cross sucking in the sheeple??
Everyone has long forgotten the 1973 to 1982 era. Most still think stocks are supposed to up with inflation instead of down.
In reply to So why are equity futures… by Alchemedes
the explanation and math is simple... no need for complex explanation. with 30 million undocumented under-the table workers, there will never be inflation, because there will never be wage increases.
hooray for tariffs on steel and aluminum! Surely they will lower producer prices! MAGA! Make America Grovel Again!