The US Producer Price Index (PPI) increased in January, largely due to significant increases in gasoline prices and health costs. This provides indications that US inflation is on the increase. So is US inflation set to rise? Let’s look at the figures.
According to the Labor Department, the Producer Price Index for final demand was 0.4% up in January. For the 12 months ending in January, the PPI increased by 2.7% that is after an advance of 2.6% in December. Hence the small 0.4% increase in January.
What is the US Producer Price Index (PPI)?
For those unsure of what the PPI Index refers to, it broadly measures the change in prices received by US producers for their goods. It is not the same as the CPI (Consumer Price Index) in that it refers to changes in prices paid by manufacturers for their raw materials for example. It is almost certain that such price increases are sure to be passed on to the retailers and then to the general population.
US PPI Increase Excludes Energy, Food and Trade Services
Any significant increase in the US PPI is almost sure to be passed on by the retailers to their customers. However, not all customers are consumers. Anything that can be done to ease the financial penalties on the consumer should be done. It should be stated here that the PPI does not include energy, food and trade services. However, these prices are also rising. They may contribute to the CPI, but not the PPI.
Us Inflation Set to Increase
This is just one sign that US inflation is set to increase. While not immediately inflationary, any increase in the US Producer Price Index is almost sure to contribute to inflation in the US as a whole. This is particularly so after a Wednesday report that there was also a broad consumer price increase in January.
Taken together, along with the increased US government spending, weaker dollar and a tightening labor market, inflation is almost certain to rise above 2% the Fed’s figure to trigger a rate hike. So will the PPI keep rising or will efforts be made to constrain it? Time will tell.