Last week the Producer Price Index or PPI was released showing that wholesale inflation rose 1.1% in the month of June. This was a hot number and was 0.8% higher than expectations. Year over year the PPI rose from 10.9% to a whopping 11.3%. Core PPI, which strips out volatile food and energy prices, rose 0.4%, which was one-tenth lower than estimates. Year over year core PPI dropped slightly from 8.3% to 8.2% which is still very hot. You have to keep in mind that this report analyzes inflation on the producer level and as a producer, you have two options, you can reduce your margins, or pass along the higher costs to your consumer which would then lead to higher consumer inflation.

Speaking of consumer inflation, The Consumer Price Index or CPI was released showing that inflation for the month of June rose 1.3% which was higher than the estimated 1.1%. Year over year, CPI inflation rose to a new high from 8.6% to a very hot 9.1%. Core CPI, which strips out volatile food and energy prices, rose 0.7% which was also hotter than expectations. Year over year Core CPI fell slightly from 6% to 5.9%. Digging deeper into the report, the energy component rose 7.5% from a month ago bringing the annual gain to about 42%. Gasoline prices rose 11.2% last month and are now up 60% year over year. Food pricing rose 1% in June and 10.4% year over year. Used cars are continuing to appreciate, in June they rose by 1.6% and 7.1% year over year.

As we see inflation continue to run hot, this still might not be the peak. We may see even higher numbers for July and August as the month-over-month comparisons are pointing to higher monthly levels of inflation from a year which would bring the annual number higher. Also, as inflation increases, this will put pressure on the Federal Reserve to continue to increase their Fed Funds rate and maybe even more aggressively.

Sources :

https://www.bls.gov/ppi/

https://www.bls.gov/cpi/

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