Producer Prices See Biggest Annual Surge on Record, Stoking Inflation Concerns

June 16, 2021 Updated: June 16, 2021

Producer prices rose above expectations in May, marking their biggest 12-month increase on record and reinforcing broader inflation concerns as higher production costs tend to filter down to consumers.

According to a Labor Department release (pdf), for the 12 months ending in May the producer price index (PPI) surged by 6.6 percent, the highest number in the history of the series, which dates back to 2010. Economists polled by Investing.com were expecting a 6.3 percent rise in the PPI final demand measure.

Producer prices excluding food, energy, and trade services—a gauge often preferred by economists because it excludes the most volatile components—rose 5.3 percent in May from a year earlier. This, too, was the biggest increase since the Labor Department started tracking that number in 2014.

Energy prices surged by a seasonally unadjusted 46.6 percent over the year in May, goods advanced 11.1 percent, and food 4.4 percent, the data showed.

Producer prices are considered a leading indicator of consumer price inflation, which accounts for the bulk of overall inflation. While the elevated manufacturing price data suggest consumers are more likely to see prices rise in the future, Federal Reserve officials have repeatedly said they believe consumer price increases are “transitory,” with the expectation that inflation will eventually moderate back to the central bank’s two percent average target.

The upward pressure on prices is “caused by this artificial shutdown in the economy, which should have never happened,” according to Lance Roberts, chief investment strategist at RIA Advisors. In an interview with NTD Business, Roberts said the government has created this “pressure cooker” by compressing economic activities during the pandemic.

“Now they’re all about to get released at one time, and unfortunately, this is going to really put the Fed into a box,” he said, referring to pressure Fed officials will face to raise interest rates if inflation fails to taper and remains elevated for longer.

Investors are keeping a close eye on the Federal Reserve’s two-day meeting, set to end on Wednesday, after which officials are due to issue a policy statement that will be scrutinized for clues as to when the Fed may begin rolling back some of its easy money policies. As part of its crisis support measures for the economy, the Fed has kept interest rates at near-zero and has been making around $120 billion in monthly asset purchases.

So far Fed officials, led by Chair Jerome Powell, have said rising inflationary pressures are transitory and ultra-easy monetary settings will stay in place for some time.

Some economists have warned, however, that inflation has now replaced high unemployment and deflationary pressures as the chief risk to the economy, while urging the central bank to begin signaling a possible policy shift toward tapering asset purchases and raising rates.

Emel Akan contributed to this report.

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