Knowledge • News • Insights

In Partnership With

Your questions + our expertise = solutions. Click here to find your solutions. Foster Swift.

PNC Senior Economist Bill Adams: Another Large Increase for Total PPI in August but Core PPI Slows

pncfsg Croppedto lowest since November 2020, evidence that inflation’s spike is transitory

Inflation, as measured by producer prices, stayed historically high in August, but there are signs that price increases are already starting to cool.

The producer price index (PPI) for final demand rose 0.7% in August after increases of 1.0% in June and July. Final demand energy prices rose 0.4%; final demand foods rose 2.9% after falling 2.1% in July; final demand transportation and warehousing rose 2.8%, and final demand trade services rose 1.5%.

PPI final demand less foods, energy, and trade slowed to 0.3% in August and was the lowest since November 2020.

The Bureau of Labor Statistics explains that over 30% of August’s increase in services prices was due to a 7.8% jump in margins for health, beauty, and optical goods retailing, while about a quarter of the month’s increase in goods prices was due to an 8.5% jump in meat prices. Another notable price increase was passenger transportation, up 8.7% on the month; its weight is around 1% of the PPI final demand index.

In year-over-year terms, PPI final demand rose 8.3% in August, up from 7.8% in July and marking another record increase since comparable data became available in 2010. An older aggregate of producer prices, the PPI for all commodities index, rose 19.9% on the year in August, up from 19.8% in July and the fastest increase since 1974.

The huge bottlenecks in trucking, ports, and other parts of the logistics system remain severe drivers of inflation. The combination of stimulus payments boosting household spending power on the one hand, and the pandemic redirecting household spending from services and toward durable goods on the other hand, caused a huge spike in demand for the goods side of the economy, overloading the logistics system and causing shortages of intermediate goods like the semiconductors needed to manufacture cars.

Strong demand and shortages have translated into a surge in prices. But consumer spending is already shifting back to services and away from durable goods. U.S. real personal consumption expenditures on durable goods peaked in March and are down a cumulative 10.1% from then through July (the latest release), while services spending has continued to recover, although it remains below the pre-crisis level after adjusting for inflation.

Over the next few months, the shift of consumer spending back to services-spending on travel, entertainment, and restaurants-and away from goods will relieve the stress on supply chains and further cool inflation.

# # #

The PNC Financial Services Group, Inc. is one of the largest diversified financial services institutions in the United States, organized around its customers and communities for strong relationships and local delivery of retail and business banking including a full range of lending products; specialized services for corporations and government entities, including corporate banking, real estate finance and asset-based lending; wealth management and asset management. For information about PNC, visit www.pnc.com.

Image result for pnc financial services

What's Hot

Get the latest news from MBN right in your inbox

Sign up for our newsletter and never miss a beat.