There's A Whole Lotta Inflation Going On
May PPI Data Confirms That Recession Is Only Just Beginning
The “expert” consensus for producer price inflation was surprisingly on the money for the month of May.
The Producer Price Index for final demand increased 0.8 percent in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed advances of 0.4 percent in April and 1.6 percent in March. (See table A.) On an unadjusted basis, final demand prices moved up 10.8 percent for the 12 months ended in May.
After cooling off for April, producer price inflation heated up again for May, as the Morningstar consensus anticipated.
The unadjusted year-on-year rate actually declined slightly, from a downward-revised April level of 10.9% to 10.8%, although even with the decline May was the sixth consecutive month year-on-year producer price inflation has been at least 10%.
While a declining top-level number generally suggests that producer price inflation may have peaked and is now starting to recede, it remains well above the existing consumer price inflation rate of 8.6%, meaning there is still significant upward pressure on consumer price inflation.
Inflation is, it would seem, still not close to a peak value.
Distortions Are Growing
Moreover, as the 1-month chart above shows, producer price inflation rates among the various subcomponents are being spread over a wider and wider range of values. This is more readily apparent when looking at the subcomponents year-on-year.
Despite marginal improvement year-on-year at the top-level number, the growing disparity among the PPI subcomponents is yet one more confirmation that the US economy—much like the global economy—is becoming increasingly distorted and unbalanced.
One potential bright spot to note, however, is that food clocked a producer price inflation rate month-on-month of 0% for May.
There is a glimmer of hope that food price inflation in the US may at the very least slow down for a time. Energy bills are going through the roof but at least people have half a chance of not going hungry as they are going broke in the dark.
We Are In A Deepening Recession
While the White House pretends the economy is growing, today’s PPI report is merely the latest confirmation that, in reality, the United States is falling deeper into recession and economic contraction. Already, even the Federal Reserve’s GDP statistics shows the economy (Real GDP) contracting from the fourth quarter of 2021 through the first quarter of 2022 after adjusting for inflation.
Ongoing red-hot inflation figures for both consumer and producer prices puts the US on the verge of a technical recession (two successive quarters of declining GDP). In other words, the recession is reaching a point where even the statisticians can’t lie and pretend it isn’t happening.
Rest Of The World Has It Worse
In a curious twist, while the US is the world’s leading economy in most respects, in this latest economic race to the bottom the US is very much in the back of the pack. At 10.8% year-on-year producer price inflation, the US slides in between Mexico and the United Kingdom for the fifth-lowest producer price inflation rate based on OECD data.
As bad as inflation in the United States is, the rest of the world continues to have it significantly worse. Arguably, the world economy is in a deeper recession, contracting farther and perhaps even faster, than the US economy.
The grand takeaway from today’s PPI report is that the US economy is still far from an inflationary peak, and thus is still far away from any sort of recessionary bottom. The state of the economy is bad and steadily getting worse.
Yesterday I asserted that global PPI data showed the global recession was just getting started. Today’s US PPI data confirmed that assessment to be very much the case.