"There’s really nothing here to shake my view that deflation, not inflation, is the threat." -Paul Krugman in the New York Times on November 7, 2010.There is simply no way to interpret the current Producer Price Index data other than price inflation continues to trend higher. Those Keynesian economists such as Krugman, who have been warning about deflation and disinflation, are being proved wrong in dramatic fashion.
The PPI 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. The 0.8 per cent increase translates into an annualized rate of 9.6 per cent.
At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 1.1 percent (a 13.2 per cent annualized rate), and of greatest concern the crude goods index rose 3.3 percent (a 39.6 annualized rate). This follows a gain of 6.5 per cent in December.
For the 3-month period ended in January, crude material prices climbed 11.5 percent after moving up 8.8 percent from July to October. In January, about half of the broad-based monthly advance is attributable to a 4.3-percent rise in prices for crude foodstuffs and feedstuffs.
Even Nixon's core inflation came in at 0.5 per cent, an annualized rate of 6.0 per cent.