Skip to comments.Aw Crap... Here It Comes (PPI)
Posted on 02/16/2011 9:43:08 AM PST by FromLori
This ain't good:
The Producer Price Index for finished goods rose 0.8 percent in January, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This advance followed increases of 0.9 percent in December and 0.7 percent in November and marks the seventh straight rise in finished goods prices. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 1.1 percent, and the crude goods index rose 3.3 percent. On an unadjusted basis, prices for finished goods advanced 3.6 percent for the 12 months ended January 2011. (See table A.)
Yuck. This isn't just bad, it's horrifying. Let's look at the table inside because it's there that you have to be paying attention to cost-push problems:
There's no possible good way to look at this.
At the finished goods level we have a three month run-rate of about 0.8% monthly. Annualized this is a 10% increase. That's freaking monstrous.
Worse however is in the intermediate goods; there we find a roughly 20% annualized inflation rate.
And in crude goods? Hold on to your hat: Annualized on an average basis over the last four months it's roughly sixty percent.
For the math wonks: ((1.047 + 1.013 + 1.065 + 1.033) / 4) ^ 12
Margin collapse? You better believe it.
Either that, massive destruction of the consumer's standard of living or both.
I've been hollering about this since August of last year. Folks, the data is not getting better.
It's getting much worse.
Almost everything in the PPI is excluded from the COL calculations for Soc Sec.
I remember the Carter days well it was really hard for young families but at least then the employment situation was not as dire. I think another big difference we will probably see this time is I doubt we will see interest rates rise to those levels for savers.
Does this mean interest rates will rise and I will finally make some money on my (small amount of) cash?
I should have read all the posts before asking my question about interest rates. Darn!!
Our parents were raking in 12% on their savings years back, and I’ve been waiting for those days to return.......
I remember CD’s were paying 20%. I know what you mean I would at least like to make something on my savings after being prudent all these years. I don’t really know if interest rates will rise or not I just see differences from what we experienced in the late 1970’s early 1980’s. I know it’s hard to believe but the employment situation was better then, incomes were rising and we didn’t have nearly as much debt. The Fed. was not monetizing our debt then either. I think they will do everything in their power to keep rates from rising.
My interpretation of a guest’s comment on FOX Business this morning: Food and energy costs are not really much of an issue yet - perhaps by May! Now that BO has reminded businesses that it is their obligation to hire people, everyone will soon be making a lot of money and just fine real soon! Wonder why my same-oh, same-oh grocery list now costs me 12-15% more a month than last December??? Must be all that gourmet food I buy like milk, bread, eggs.
I thought food and fuel were no longer included in the CPI.
Inevitable. Now they have to raise interest rates.
1. Runaway inflation.
2. Demographics to pull more public money.
3. A health care program we can’t afford being implemented.
4. Solar flares heading our way, lack of sunspots, climate change for the cooler.
Sounds like we should be getting defensive.
Something else is different this time. It’s the attitudes of the public. During past bad times the majority of the population had a work ethic. This has changed. A substantial proportion of the people I see are now entitlement-based. They think they deserve all sorts of free stuff courtesy of the rich via the govt. These people will engage in violence when they don’t get their way. Better be ready for door to door looters in the big liberal (= criminal) cities. Be ready to defend yourselves and families. Roving gangs of looters are likely.
It’s not when they report on inflation but you will have the same old Fed. loving people on here claiming it is because they have it in a report.
“As Bernanke testified before Congress last week, economists exclude food and energy prices because that core inflation rate “can be a better predictor of where overall inflation is headed.”
See full article from DailyFinance: http://srph.it/hVHkw8
As do I.
Do you remember the term "Bond Vigilantes" aka "Bond Ghouls"?
These were terms that described investors in the long term bond market. They demanded those extremely high interest rates to buy bonds. Rates for mortgages were tied to the "Long Bond", or 30 year Treasuries, and, at one point, mortgage rates were around 19-20%. This situation strangled the housing market and the economy in general.
Paul Volker was Chairman of the Fed at that time. He raised short term rates as well, putting further pressure on the economy.
It was a great time for savers.
It was a terrible time for just about everyone else.
Why did the "Bond Vigilantes" and the Fed Chairman do these things?
To fight inflation.
Every situation is different, but if inflation returns, be aware that these are the tools that the Fed and the bond market have used in the past, and may employ in the future.
I do remember that we actually took an ARM home loan with a 3 year reset because of those high rates though they weren’t like they were during this collapse, back then every aspect of your life and credit was thoroughly investigated in order to get a loan.
I know they can use those tools in fact I wish they would use those tools lol I’m a saver and could earn some pretty good money but that’s a personal perspective overall I also know how it is harder for the younger people.
Now though we have Bernanke who it would appear his only interest lies in propping up the stock market and the Feds member banks. The Fed. also changed the accounting rules recently and with Banana Ben monetizing our debt things may be quite different.
Had he done so, the banks would not have collapsed, investors would have not lost most of their retirements and created the panic it did.
The damage that this idiot has done is way beyond mere corrections by raising interest rates. Keynesian economics has been implemented in levels never before seen in human history. The ensuing mess this has created is beyond comprehension. There is now no simple tactic or strategy known to man that can fix this now..........
We are in trouble financially but I’m just tuning out the bloviation. Thanks Lori for the great job of pulling these analysis into FReep. IMO Bernake will go down with the ship before the prick will admit he is wrong....I am so disgusted with this that I have quit reading sites like Denninger, who is a bright & knowledgeable guy but full of himself to the point of obnoxiousness + he is a bit of a LeftyTarian big mouth.
I don't expect this administration to do anything to dampen inflation. Our best hope for some relief is for the House of Representatives and the state and local governments to reduce spending and begin dealing with this excessive public sector debt. On the federal level, I suspect we'll hang on for a wild ride and work hard to elect fiscal conservatives. A fiscally conservative administration may well push up interest rates a la Volker. Of course, investors (e.g. China) may not be content with current low interest rates, given rising inflation and continued deficit spending by the US. If investors demand higher interest rates, what then? Borrow more from China to pay for it? We're over our heads in red ink at these interest rates. How are we going to deal with higher rates? Difficult questions.
Two things. First the Fed is nominally an independent entity, acting without regard to pressure from any Administration, fiscally conservative or no.
Second, the Fed, while it can control short term rates, has very little control over long term rates, which are set by auction.
This is where the "Bond Vigilantes" come in. If they lose confidence in the Government's ability to repay its debts, or if they suspect that inflation will eat up their returns, they will demand a higher rate, and withhold their bids at auction.
At our current level of debt, any increase in the cost of borrowing could be disastrous. Interest on the debt will begin to crowd out all other items in the budget.
Borrowing from China, or anyone for that matter, does nothing to help us, unless they decide to do us the favor of giving us a cut rate deal (bailout). Like Greece, however, we can expect them to dictate drastic cuts in spending, on their terms, not ours.
If inflation continues to rise, the Fed will be forced to turn around its "free money" policy and raise interest rates to combat it.
The Government will be forced to cut spending for everything but the interest on the debt, and bring it down to sustainable levels.
Otherwise the game is over for us.
[Our parents were raking in 12% on their savings years back, and Ive been waiting for those days to return.......
I have to explain this to my mother over and over.
If you are “raking in” 12% but the inflation rate is 14%, you are screwed! You just didn’t know it back then, maybe you understand now.
But, as someone also pointed out, CDs were at 20%. It was a good time. My Dad made MONEY!!! He did.
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