Total PPI 2.4% vs 2.6% y/y Bloomberg consensus (0.1% vs 0.4% core.) Signal or not for future core CPI and CPI inflation?
Figure 1: Headline CPI m/m annualized inflation (black), core CPI instantaneous (T=12, a=4) (blue), core PPI instantaneous (T=12, a=4) (tan). Instantaneous inflation, see Eeckhout (2023). NBER defined peak-to-trough recession dates shaded gray. Source: BLS, NBER and author’s calculations.
While there is some evidence that PPI feeds into CPI in a sequential manner, as discussed in this post, it’s not likely to be a strong effect. For core measures, it seems even weaker. In non-pandemic samples, one can’t reject Granger non-causality going both ways. For full available sample (2010-2023M06), one can reject non-causality going both ways. On the other hand, the fact that both core CPI and core PPI are falling would seem to signal continued downward pressure on prices overall in the economy.
The argument made by defenders of corporate pricing policies – and the striking rise in corporate profits during a period of inflation – is that firms simply anticipated inflation in input costs and priced their outputs accordingly. Greed, they say, has nothing to do with it. It’s a claim about causality. Profit growth has cooled as PPI has cooled, so maybe?
https://fred.stlouisfed.org/graph/?g=171qs
Looks to me like a lot more is going on than simple anticipation of cost, but what do I know? Let’s ask Granger.
With this PPI reading and deflation news from China https://global.chinadaily.com.cn/a/202307/10/WS64ab5956a310bf8a75d6e2cd.html – I wonder if Larry Summers and Powell wake up from their 1970s stagflation daydreams and realize that we don’t have to put 5 million people out of work and maybe the real problem is lack of workers and lack of housing https://ritholtz.com/2023/07/contrarian-inflation/