DEAD, OR JUST DORMANT?
Maybe it's not so benign after all. Producer prices rose 1.0% in July, the Bureau of Labor Statistics reports. As with yesterday's news on consumer prices, removing food and energy from the equation lessens the pricing momentum, bringing the PPI pace of advance down to 0.4% last month. But 0.4% ain't hay.
In fact, 0.4% is the highest monthly rise in the so-called core producer price index since January's 0.7%. As a result, core PPI now running at 2.8% over the past 12 months—the highest since 1995. Yes, Virginia, that's 1995.
Inflation, if you haven't yet caught the drift, isn't quite dead. That fact promises threatens to be front and center when the Fed convenes its next Federal Open Market Committee meeting on September 20. Indeed, today's PPI report all but insures that another 25-basis-point hike in Fed funds is coming. The news on wholesale prices "raises the probability that the Fed will not pause [in its raising of interest rates] this year," Anthony Chan, senior economist at J.P. Morgan Asset Management tells Reuters today.
This all comes after last week's FOMC statement that core inflation "has been relatively low in recent months…." Perhaps it's time for the Fed to rethink.
While these inflationary pressures may be driven primarily by energy prices (oil, etc) economists shouldn't be so quick to pooh-pooh that, as its effects are quite real. Backing me up on this is Wal-Mart (and everyone who has filled up a gas tank recently) who noted that the rise in energy prices has disproportionately hurt the retail giant's primary customer base.
Yet, as the Capital Spectator notes:
Meanwhile, it's business as usual on Wall Street, which is to say that short-term trading retains the allure of the moment over buy and hold. Indeed, the VIX index, a measure of the equity market's price volatility, is on the rise this month. We're all day trader's now.
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