All this stimulus makes inflation higher

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The question on everyone’s mind remains: Is inflation a temporary sugar leak from the stimulus or is it here to stay?

The US producer price index, which measures selling prices for goods and services, rose 1% on a seasonally adjusted basis in March, the Bureau of Labor Statistics said on Friday. This was stronger than February and higher than economists had expected.

Prices for finished products have risen the most since the government began pursuing the specific measure in 2009.

The biggest driver was a sharp rise in gasoline prices by 8.8%.

Year-on-year, producer price inflation stood at 4.2%, the highest increase since September 2011, almost a decade ago.

“While it is a surprise for consensus and our forecasts, it is not too unexpected to see much higher commodity prices,” given high demand and global supply chain issues as economies reopen, he said. Read (C) economist Andrew Hollenhorst in a note to customers.

Inflation has become the bogeyman of the moment. Investors worry that as the economy fully reopens, sudden price increases, fueled by restrained consumer demand, could force the Federal Reserve to rethink its monetary policy. The central bank dismissed this concern, saying that price increases will only be temporary as the economy returns to normal.

Despite these reassurances, the scenario that Wall Street is worried about is a sharp rise in interest rates to counteract suddenly high inflation.

Although these worries had a tight hold on the stock market just a few weeks ago, investors were calmer on Friday.

The yield on 10-year treasury bonds, an indicator for interest rate expectations, rose only slightly to 1.64%. This was enough to send heavy technologies Nasdaq Composite (COMP) slightly lower index. But the wider stock market remained on record territory with S&P 500 (SPX) gaining enough ground to enter the track for another record.
“However, given supply chain bottlenecks and growing gains in the reopening of the economy, the Fed will continue to stand in the hands of politics as it waits to see if the recent takeover will remain strong beyond this. year, “he said Fargo fountains (FANTO FARGO) economist Sarah House.

In other words, don’t worry about prices getting out of control yet.

Inflation is a complex calculation, because it is a process, not a single economic event. Making things more confusing, there are several different measures of inflation, with PPI being just one of them.

Another is the CPI, or consumer price inflation, which measures price changes for a different set of goods and services. March CPI data is expected next Tuesday, and economists surveyed by Refinitiv expect a 0.5% increase.

There is also an index for personal consumption spending, which is often referred to as the Fed’s preferred measure of inflation. The PCE index for March will end at the end of the month.

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