If consumer inflation is to ebb, the first signs may come from far away from store shelves.
Consumer prices are surging by their fastest annual rate in 40 years. With January’s 7.5% jump from a year ago, annual consumer inflation has been increasing by more than 5% for the past eight months, something shoppers haven’t experienced since 1979.
Bond prices have dropped, interest rates have risen, and the stock market has been volatile as investors grapple with the Federal Reserve’s coming change to begin raising its target short-term interest rate in the effort to fight off inflation from becoming embedded further in the economy.
So, there is an intense search for any signs of moderation.
The markets will be looking further up the supply chain in the week ahead with the January Producer Price Index. The PPI, as it is known, measures inflation at the wholesale, not consumer, level. These are the prices paid for goods and services by companies selling those goods and services to end users, aka consumers. And the prices charged by the companies.
Don’t expect much relief right away. In December, wholesale inflation was still running hot — up 9.7% compared to a year earlier. This is the final demand number, which measures price changes of stuff and services sold by companies to consumers and for export. These prices are close to the end of the wholesale pipeline. There was an ever so slight slowdown compared to a month earlier, but hardly enough to signal a significant change in direction of prices.
Even further upstream, prices showed meager signs of easing. Intermediate demand, which captures prices paid by companies for stuff and services they use, fell in December for the first time since April 2020. Yet it still skyrocketed more than 24% compared to a year earlier. So those prices still are in the pipeline, making their way through to consumers.
Even ignoring wholesale energy and food prices, price hikes remain in the pipeline, likely to continue flowing and sucking up more consumer and corporate purchasing power and fueling investor worries.
