15 November 2022

PPI Improves

So, the Producer Price Index (PPI) increased at a slower rate than forecast in October.

The question is whether changing facts on the ground will have the Federal Reserve will moderate their rate increases in response.

My money is on, "No," because even if they overshoot, they will still receive accolades for being, "Tough."

Their incentive is to over-correct.  Just look at how Paul Volker was lionized.

Making war on the American worker is the official policy of most economists and politicians:

U.S. supplier price increases slowed in October for the second straight month, adding to signs that inflation pressures could be abating.

The producer-price index, which generally reflects supply conditions in the economy, climbed 8% in October compared with the same month a year ago, the Labor Department said Tuesday. Though prices continued to rise rapidly, the pace marked an easing from September’s revised 8.4% increase, and was down sharply from the 11.7% increase in March, the highest since records began in 2010.

U.S. stocks rose and U.S. government bond yields fell after producer prices increased by less than investors anticipated.

Consumer price increases also eased last month after hitting a four-decade high over the summer. The Federal Reserve is aggressively raising interest rates to bring down inflation and cool the economy, without triggering a recession. The latest inflation numbers likely keep the central bank on course to start slowing the pace of rate rises.


PPI captures what suppliers are charging businesses and other customers. It generally reflects the changes in costs that producers are facing combined with the pricing power they command—which, in turn, can indicate inflationary pressure building throughout the production pipeline.

The bottom is already falling out of the real estate market, and the knock on effects are likely to be significant.

A pause, or at least making an increase of only 25 basis points ( ¼%) should be what the Fed does at their next meeting, but they won't.


Anonymous said...

There’s a simpler explanation: for a number of years, interest rates were so low that the Fed had no ability to lower them in response to economic circumstances. It wants that ability back and will do what it takes to get it, damn the consequences.

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