Business Cost Gauge Points to Inflation Sticking Around for Longer

A person works at an injection molding station at the Polaris manufacturing and assembly plant in Roseau, Minn., on June 7, 2021. (Dan Koeck/Files/Reuters)

A new report from the Department of Labor detailing price dynamics from the perspective of input costs to businesses shows underlying inflationary pressures rising in August, suggesting inflation could stick around for longer.

The headline Producer Price Index (PPI), which tracks inflation before it hits consumers, fell 0.1 percent between July and August, according to a statement from the Bureau of Labor Statistics (BLS) on Sept. 14.

But the so-called core PPI, which excludes the volatile categories of food and energy and is a measure of underlying, or “sticky,” inflationary pressures, rose 0.2 percent last month. That’s a faster pace of month-over-month core business input cost growth than the 0.1 percent recorded in July, suggesting underlying inflationary pressures were building again after three consecutive months of easing.

Core inflation is a measure that’s closely watched by investors as a gauge of future inflation and the persistence of price pressures.

And while the headline PPI measure fell 0.1 percent, it’s a slower pace of business cost declines than the 0.4 percent drop in July. This, too, suggests inflationary pressures may be taking longer to dissipate.

‘Inflationary Pressures Remain’

There was a similar dynamic in the core consumer price inflation data released by the BLS on Sept. 13. This showed the core Consumer Price Index (CPI) gauge surging 0.6 percent month over month in August, twice the pace in July.

“Like yesterday’s #CPI report, today’s #PPI report shows that inflationary pressures remain,” said Kathy Jones, chief fixed income strategist at the Schwab Center for Financial Research, in a statement on social media.

Some economists offered a different take.

Dean Baker, senior economist at the Center for Economic Policy Research, for example, pointed out in a post on social media that core PPI had risen by “a total of just 0.6 percent in the last three months,” prompting New York Times columnist Paul Krugman to respond by saying that “core PPI looks as if it’s on a clearly downward trend.”

Market reaction to PPI inflation data released on Sept. 14 was muted after Tuesday’s CPI figures sparked a flurry of selloffs.

“No one cares about the PPI anymore,” said Ian Shepherdson, chief economist at Pantheon Macroeconomics, in a statement. “But for the record, the underlying trends in producer inflation are falling quite fast,” he added.

Following opening bell on Wednesday, Wall Street’s main stock indexes were mixed, with the tech-heavy Nasdaq on track to recover some of the deep losses of the prior session after the red-hot CPI inflation data sent equities tumbling.

Tuesday’s trading ended with the Dow Jones Industrial Average down 1,276 points, or 3.94 percent, its worst day since June 2020. The Nasdaq composite fell 632 points, or 5.16 percent, and the benchmark S&P 500 Index tumbled 177 points, or 4.32 percent.

At the time of reporting on Wednesday, the Dow was down 80 points, or 0.26 percent, the S&P 500 down 7 points, or 0.18 percent, and the Nasdaq composite was up 78 points, or 0.64 percent.