Saturday, April 24, 2010

Producer Prices Producing Signs Of Inflation

The recently released Producer Price Index (PPI) is beginning to show signs of the inevitable wave of hyper-inflation (

The PPI for Finished Goods rose 0.7%  from February to March, seasonally-adjusted, following a 0.6% decline in February and a 1.4% increase in January.

In March, more than 70% of the increase in the finished goods index can be attributed to a 2.4% jump in prices for consumer foods.  The index for finished energy goods advanced 0.7% and prices for finished goods, other than foods and energy, edged up 0.1%.

Excluding seasonal adjustments, the March PPI rose by 1.1%.  On a year-to-year basis, March’s annual PPI rose to 6.0%, up from the 4.4% annual inflation reported for February.  The March 2010 annual inflation rate was the highest since the 8.8% annual rate in September 2008, when the systemic solvency/financial crisis reached its peak.

Rising prices of commodities is the driver.  Of 15 major commodity price indexes, 13 were higher month-to-month (data are reported not seasonally adjusted).  The PPI All Commodities Price Index was up year-to-year in March 2010 by 9.0%, versus a 6.9% annual gain in February and was at its highest growth rate since September 2008.  Similarly, the March Purchasing Managers survey had shown its highest "Prices-Paid" index readings since August 2008 for manufacturing and since September 2008 for non-manufacturing industries.

Obviously, the inflation-creep is bullish for Gold and Silver.  Recent auctions for Treasuries have become more problematic as the result of poor yields.  The Federal Reserve has no choice but to keep rates low as long as possible, especially as the non-existent "economic recovery" sputters.  This leaves no choice but for the Washington cabal to monetize our debt and fan the flames of inflation.

As we've mentioned in prior blogs, inflation has a lag effect and, once started, is incredibly difficult to thwart.  The only solution is to endure a sustained period of economic hardship.  Paul Volcker, former head of the Federal Reserve, resorted to raising interest rates to nearly 20%.  This was followed by a severe recession until the Reagan tax cuts provided enough economic stimulus to set the stage for a prolonged period of sustained growth.

Marko's Take

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