Inflation

The US PPI was released last night, and not surprisingly, was up big tim.
From Invesopedia

In March 2022, the Producer Price Index (PPI) for final demand increased by 1.4% on a seasonally adjusted basis. This follows monthly increases of 1.2% in January 2022 and 0.9% in February. On an unadjusted basis, the PPI has risen by 11.2% for the 12 months ending in March 2022, the largest 12-month increase since the data was first compiled in this manner in November 2010.1

The monthly rise of 1.4% in March also equates to a compound annualized growth rate (CAGR) of 18.2%. In general, the PPI is a gauge of inflation that measures increases to input costs faced by the producers of goods and services. Because it measures price changes before they reach consumers, some analysts see it as an earlier predictor of inflation than the CPI.

KEY TAKEAWAYS​

• The Producer Price Index (PPI) for final demand was up by 1.4% in March 2022.
• It has risen by 11.2% over the past 12 months, and the current annualized pace is 18.2%.
• This follows monthly increases of 1.2% in January and 0.9% in February.
• The index for goods was up by 2.3% in March, and the index for services rose by 0.9%.
• Higher consumer price inflation may be ahead.

High Level Detail​

In March 2022, driving the overall rise of 1.4% in the PPI for final demand was an increase of 2.3% for final demand goods. The index for final demand services was up by 0.9%. Prices for final demand less foods, energy, and trade services increased 0.9% in March 2022, the largest advance since the 1.0% rise in January 2021. For the 12 months ending in March 2022, the index for final demand less foods, energy, and trade services moved up by 7.0%.1

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As has occurred with the CPI figures, the rate of increase has been rising steadily, so there is plenty in the pipeline.
This transitory Inflation is putting a new meaning to the word Transitory.
How long does it take for Inflation to keep rising before the Fed heads and others who trotted out the tag line admit they got it wrong??
Mick

mullokintyre said:

transitory Inflation

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I have to find a good image to go with that phrase and put it all together on a T-shirt.

It's kind of the most cynical phrase ever thrust into the public and shows how much contempt these idiots have for everyday people and how protected and immune they are to the consequences of their actions.

mullokintyre said:

The US PPI was released last night, and not surprisingly, was up big tim.
From Invesopedia


As has occurred with the CPI figures, the rate of increase has been rising steadily, so there is plenty in the pipeline.
This transitory Inflation is putting a new meaning to the word Transitory.
How long does it take for Inflation to keep rising before the Fed heads and others who trotted out the tag line admit they got it wrong??
Mick

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I for one will welcome interest rates of 8-12%.

Too much easy money atm.

Even dimwit corrupt Liberal, National and ALP politicians can enter parliament bare-a.sed and end up after six years multi-millionaires.

gg

Garpal Gumnut said:

I for one will welcome interest rates of 8-12%.

Too much easy money atm.

Even dimwit corrupt Liberal, National and ALP politicians can enter parliament bare-a.sed and end up after six years multi-millionaires.

gg

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yeah good times but how could that be even possible with so much debt

3 hound said:

I have to find a good image to go with that phrase and put it all together on a T-shirt.

It's kind of the most cynical phrase ever thrust into the public and shows how much contempt these idiots have for everyday people and how protected and immune they are to the consequences of their actions.

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How about These??

Inflation is NEVER transitory.

Similar to toilet paper during Covid

Buy today or it will be 20% more in 3 mo. time will be what drives it.

gg

3 hound said:

I have to find a good image to go with that phrase and put it all together on a T-shirt.

It's kind of the most cynical phrase ever thrust into the public and shows how much contempt these idiots have for everyday people and how protected and immune they are to the consequences of their actions.

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A bit of inflation is not to big a price to pay if a world filled with war and a pandemic.

I mean whole cities are basically being destroyed in the Ukraine, and thousands being killed and families ripped apart, and if the largest effect it has on you is a higher fuel price and some extra inflation I think you are doing very well and shouldn’t really be complaining.

For as long as human society has existed our production has been impacted by floods, droughts, disease, war etc etc and during those times there is less to go round, in modern society you just get some supply chain disruptions and some inflation, it could be a lot worse.

Value Collector said:

A bit of inflation is not to big a price to pay if a world filled with war and a pandemic.

I mean whole cities are basically being destroyed in the Ukraine, and thousands being killed and families ripped apart, and if the largest effect it has on you is a higher fuel price and some extra inflation I think you are doing very well and shouldn’t really be complaining.

For as long as human society has existed our production has been impacted by floods, droughts, disease, war etc etc and during those times there is less to go round, in modern society you just get some supply chain disruptions and some inflation, it could be a lot worse.

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No, just no.

Do you work for Joe Biden?

I think you have listened to one too many virtue signalling millionaire celebrities that say stuff like they are happy to pay $60 a gallon for fuel because war in Ukraine....and then finish the sentence with "I own a Tesla" and give a smug smile.

3 hound said:

No, just no.

Do you work for Joe Biden?

I think you have listened to one too many virtue signalling millionaire celebrities that say stuff like they are happy to pay $60 a gallon for fuel because war in Ukraine....and then finish the sentence with "I own a Tesla" and give a smug smile.

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Ok, feel free to complain about prices being a little higher when others are having their country destroyed.

We live in the real world, bad stuff happens and if the only effect you get is some higher prices so be it, you will have to look for sympathy some where else.

mullokintyre said:

Sometimes you need to look behind the headline figures,
the 8.5% figure is pretty bad in its own right, but when you look at the month on month figures it looks even worse.
As can be seen from the graph below taken from Trading Economics , Inflation from May thru to September last year was pretty flat, so most of that 8.5% has occurred sice October last year. And to top it off, the monthly increase has been in an upward trend as well.
The latest March increase was 0.6 %, Feb was 0.4% , Jan 0.5% , Dec 0.2%.
The other Interesting Phenomenon is that at six month intervals, in May 2020 and October 2020, there big jumps of 0.8%.
It could correspond to six monthly price reviews or rebalancing etc. Be interesting to see if this is repeated in May this year.
Mick
View attachment 140368

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One of the things we need to remember is that historical comparisons sometimes need to be looked at with a the consideration of changes in definitions in mind.
the headline shouted that inflation was the highest since 1980. But its much worse than that.
if the same manner of calculatiing the PI that was used in 1980 were to be used today, inflation would be much greater.
According to a podcast by Peter Schiff

Forty years ago, we used entirely different CPI than we use today. And as far as I can tell, we are generally missing the mark by about half, meaning that if we use the 1981 CPI to measure the 2022 price increases, we probably would see a year-over-year rise of 17%, which is twice eight-and-a-half.”

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Families can’t strip out food and energy. They can’t survive without food and energy. When food and energy prices are up year-over-year big, that’s not volatility. That’s a trend. And you can’t ignore that trend when you’re trying to calculate inflation and determine whether or not you have a problem. You have a big problem.”

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Peter noted that in 1981, the last time CPI was this high, interest rates peaked at 20%. Today, interest rates are at 0.25%. Then, we had real rates of over 6%. Today, real rates are deeply negative.

Is inflation going to peak when interest rates are at -8.25% when it took positive 6.5% to get inflation to peak in 1981? And of course, if we are measuring prices accurately, as I said earlier, we’ve got 17% inflation, which means we have -16.75 real interest rates — inflation is far more likely to accelerate than come down when you have a negative interest rate that high. Instead of being at the end of an inflationary period, we’re just beginning. … All of the people who are saying inflation has peaked they’re just saying that because they hope it’s peaked.

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Phew, we are so lucky that deffiniton was changed, otherwise we would be in serious trouble!
Mick

Value Collector said:

Ok, feel free to complain about prices being a little higher when others are having their country destroyed.

We live in the real world, bad stuff happens and if the only effect you get is some higher prices so be it, you will have to look for sympathy some where else.

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If you accept the war in Afghanistan was a success and the current inflation trajectory was caused by the Ukraine war then we have nothing left to discuss. Life is too short.

Have a good night.

mullokintyre said:

One of the things we need to remember is that historical comparisons sometimes need to be looked at with a the consideration of changes in definitions in mind.
the headline shouted that inflation was the highest since 1980. But its much worse than that.
if the same manner of calculatiing the PI that was used in 1980 were to be used today, inflation would be much greater.
According to a podcast by Peter Schiff


Peter noted that in 1981, the last time CPI was this high, interest rates peaked at 20%. Today, interest rates are at 0.25%. Then, we had real rates of over 6%. Today, real rates are deeply negative.


Phew, we are so lucky that deffiniton was changed, otherwise we would be in serious trouble!
Mick

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Reminds me of a certain transport system that was plagued with faults - the faults were all fixed instantly by changing the name to "non-compliance issues".

The reporting that followed was about how all the faults had been fixed.

Value Collector said:

Ok, feel free to complain about prices being a little higher when others are having their country destroyed.

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There's been wars for the last 20 or more years. Maybe the ghost of Europe past is rattling markets.

Garpal Gumnut said:

I would stick around Victoria, Mick, the Age reckon it is not replacing it's population, lowest birthrate in Australia.

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Is there too many basket weavers grouped together GG?

moXJO said:

There's been wars for the last 20 or more years. Maybe the ghost of Europe past is rattling markets.

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This time it’s disrupting energy markets, particularly the Oil Market.

moXJO said:

Is there too many basket weavers grouped together GG?

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Well, I hesitated to say it, lest I unleashed The Furies upon me.

In a word yes.

Self centred prigs, gobbling turkeys, basket weavers, bearded bent over peaceniks and shrill to all appearances asexual dwarves.

While the rest of us just get on with our primary biological imperative, which is to reproduce, and lessen inflation.

gg

Here's the thing to note: Once these companies are gone, the infrastructure is a ticking time bomb. Either it's hit by partisans/guerilla warfare from the ukrainians or it simply crumbles from lack of maintenance and then there is nobody left nor willing to return to fix it, meaning that it goes offline more or less permanently. I'm not convinced that markets have actually realised this yet.

Meanwhile:



One of the few lights in the energy inflation tunnel is china's lockdowns, which have pummeled chinese demand and thus taken the strain off a bit. This will obviously pick back up at some point:



There's also no shortage of more shale capacity that can come online just in the USA:


And the baker-hughes worldwide the rig count sits at approximately 25% below its 2019 numbers:



Despite this, the fed, only having the financial levers to pull, is now looking like this:




As for why the rig count isn't higher at the moment, is hard to say (how much of it is virus?). We do know that release of the strategic reserve plus a bounce in interest rates should give a nice increase in oil supply as well as a reduction in demand simultaneously. Combine this with china's lockdowns showing no signs of ending (I saw some numbers showing that shanghai alone has dropped their demand by over 9%) and we can see energy in a solid drop off its recent highs:



Considering my whole point here is that we've got a long term cut off of supply not yet priced in combined with a short term dip in demand, the only thing I can see stopping this being a beautiful dip to buy is more fed tightening.

Considering markets seem to have all but priced in several 50 basis point rises already, we'd need to see either 75 point increases or another virus outbreak and associated lockdowns in another oil demanding but not producing part of the world for this to be anything other than a brief dip to buy.

I'd see a 25 basis point rise more likely than a 75 tbh just on account of how much a 75 would spook markets. Powell's hesitant to even say that 50 is not off the table.

Buy point is probably once the chinese lockdowns show some kind of sign of easing, but long term, I couldn't see a buy around now or within the next few trading days I.e next week being a bad move either.

Fed meets on 3rd & 4th.

There you go.

over9k said:

View attachment 140742

There you go.

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? Thanking you, St. Jerome.

Even if interest rates hit 3%, where would the majority put their money if inflation was still running at 8%?
Crypto, equities, futures, options are the only instruments that will produce returns that beat inflation.
The strategy is to buy the dip and hope the system doesn't fall apart.

waterbottle said:

? Thanking you, St. Jerome.

Even if interest rates hit 3%, where would the majority put their money if inflation was still running at 8%?
Crypto, equities, futures, options are the only instruments that will produce returns that beat inflation.
The strategy is to buy the dip and hope the system doesn't fall apart.

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USD, maybe gold.

The impact of losing Russian crude can not be underestimated, the knock-on effect to the largest importers e.g. to China is undeniable. Replacing Russian lost crude will not be a "just in time" fix and as OPEC has already stated that they will not be able to meet demand and obviously new wells take time to bring online.

Increasing production from Nth America may add approx. one or two million barrels per day, still need to transport that to those big importers.

Another consideration, it's not just about barrels per day it is also about the quality e.g. the sulfur content and API gravity (light or heavy), which affect processing complexity and product characteristics.

From EIA:

Heavy crude oils require additional, more expensive processing to produce high-value products. Some crude oils also have a high sulfur content, which is an undesirable characteristic in both processing and product quality.

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With oil and gas such a vital component of our way of life, a tightening oil market with additional processing costs combined with other constraints (transport, new production costs etc) does not bode well for our hip pocket.

With all the Russian taps turned off, so to speak, one can even envisage fuel rationing as evident already in Europe.

Further, if China can't keep the manufacturing engines turning, I think we can kiss the recent good times (Covid not withstanding), goodbye.