Inflation Not Dead Yet


What happened to all those fears of deflation?

AP: The labour Department said Thursday that wholesale prices increased by 0.8 per cent last month, the biggest gain since last July and well above the 0.2 per cent increase that economists had expected.

The acceleration was led by a 3.7 per cent surge in energy prices with gasoline prices jumping by 15 per cent, the biggest gain in 14 months.

Even outside the volatile food and energy sectors, wholesale prices showed a bigger-than-expected increase, rising by 0.4 per cent. Economists had expected a slight 0.1 per cent rise in so-called core inflation.

Some economists might say this is a good thing, since for all of inflation’s evils, mainstream economics considers deflation to be much worse. Bet let’s just common-sense this for a second: If the economy is worsening, wages are going down, and people are losing their jobs, don’t higher prices just make things worse? Maybe that’s thinking to linearly.  Wait wait, don’t say it, there’s some kind of “paradox” we’re not getting.

Here’s Ian Shepherdson’s snap take:

The PPI rose 0.8% in January, well above the consensus 0.3%,   
while the core rose 0.4%, also above consensus, 0.1%.         
The consensus forecast for the headline always looked too low –
we expected a 1% rise – but the core is a surprise. Increases in
prices for prescription drugs (up 1.1%), tobacco (0.6%), cars 
(0.3%), light trucks (0.5%) and toys & sporting goods (4.4%) ac-
count for most of the overshootagainst expectations. We are not
worried; over time the core PPI follows movements in core mater-
ials prices, which are down 27.9% y/y, signalling that core fin-
ished goods PPI will drop about 1-1/2% over the next year. The 
monthly data are volatile but the outlook is clear