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US Wholesale Price Index Hits Record High

Jonathan loves talking politics, economics and philosophy. He carries unique perspectives on everything making him a rather odd mix of liberal-conservative with a streak of independent Austrian thought.
Published: January 15, 2022
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People shop for groceries in a Manhattan store on Jan. 12, 2022 in New York City. Newly released data shows that inflation grew at its fastest 12-month pace in nearly 40 years during the month of December. It showed a 7% jump from a year earlier, as prices rose on everything from gas to furniture for American shoppers. The PPI increase in Dec. 2021 is the largest annual rise since 2010. (Image: Spencer Platt/Getty Images)

The Producer Price Index (PPI), which measures prices paid by manufacturers of goods, services, and construction, rose by 9.7 percent in Dec. 2021 compared to the same month in the previous year, figures from the U.S. Labor Department show. This is the largest annual PPI increase since 2010, beating the 1.4 percent increase in 2019 and 0.8 percent rise in 2020.

On a monthly basis, PPI rose only 0.2 percent in December after a 1.0 percent rise in November. Energy prices fell by 3.3 percent in December following a 2.0 percent increase in the previous month. 

December’s food prices declined by 0.6 percent after it had risen by 1.2 percent in November. PPI core inflation, which excludes energy and food, rose 6.9 percent in December compared to a year back. Against November’s spike of 0.8 percent, core PPI in December only increased by 0.4 percent.

“Despite annual figures that are tracking at historic highs, moderation in the monthly data supports our view that producer prices will gradually descend as 2022 progresses, especially in the second half of the year,” Mahir Rasheed, U.S. economist at Oxford Economics, said in an analysis.

The PPI data comes just a day after the Labor Department released the latest Consumer Price Index (CPI) data. December 2021 CPI, which measures a variety of items like healthcare, groceries, gasoline, and so on, rose by 7.0 percent when compared to the same month in 2020. This is the fastest pace by which the annual CPI has surged in four decades.

Back in June 1982, the CPI had hit a high of 7.1 percent. When compared to Nov. 2021, the Dec. 2021 CPI rose by 0.5 percent. Core CPI, which excludes items like food and energy, spiked by 5.5 percent in December compared to a year ago. This is the biggest 12-month core CPI increase in almost three decades.

Speaking to Fox News, Seema Shah, chief strategist at Principal Global Investors, called the 7.0 percent inflation “no joke” and pointed out that the higher prices have not been driven by energy costs but by “just about everything else.”

During the Federal Reserve’s policy meeting in December, it was revealed that the central bank expects inflation to fall to 2.6 percent by the end of this year and to 2.3 percent by the end of 2023. Chairman Jerome H. Powell stated that inflation will come down “significantly” as we move to the end of 2022. However, not all economists are optimistic about such a scenario.

“Between wages and shelter, we haven’t seen the worst of inflation, even if energy prices moderate, even if supply chain issues start to resolve themselves… I still think we’re in for several months where prices are growing faster than what we’ve seen,” Michael Strain, director of economic policy studies at the American Enterprise Institute, told The Washington Post.

Powell has indicated that the Fed is considering speeding up its plans to combat inflation. The Fed is expected to start raising interest rates in March, putting an end to the pandemic era’s near-zero rates. Last month, policymakers from the Federal Reserve indicated that they could increase interest rates three times this year. At a Senate Banking Committee meeting on Jan. 11, Powell once again confirmed the Fed’s plan to raise rates.

“As we move through this year, if things develop as expected, we’ll be normalizing policy, meaning we’re going to end our asset purchases in March, meaning we’ll be raising rates over the course of the year… At some point perhaps later this year we will start to allow the balance sheet to run off, and that’s just the road to normalizing policy,” Powell stated.