Tuesday, October 18, 2011

Producer Price Index Skyrockets (Keynesians were clueless, again)

The Producer Price Index for finished goods rose 0.8 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Keynesian economists polled by Reuters had expected prices to increase 0.2 percent. The PPI climbed 6.9 percent for the 12 months ended September 2011.

In September, the increase in the index for finished goods was broad based, with prices for finished energy goods rising 2.3 percent, the index for finished goods less foods and energy moving up 0.2 percent, and prices for finished consumer foods advancing 0.6 percent.

The index for finished goods less foods and energy moved up 0.2 percent in September, the tenth straight increase.

Prices for finished consumer foods climbed 0.6 percent in September, the fourth consecutive monthly increase.

Bottom line: Price inflation continues to intensify, something that Keynesian economists can't explain with their models. Only an understanding of money flows and its impact on the economy, something only understood by Austrian economists, can explain what is going on now. Note to Keynesians: The price inflation is going to get much worse.


  1. "Note to Keynesians: The price inflation is going to get much worse."

    Paging Dr. Krugman: the inflation you begged for is here.


  2. Just a few weeks ago the sausage I buy was still in 16 oz. packages. Yesterday, I purchased it for the same price in a 13 oz pack. What an odd number? Also, bought some Cajun boudain sausage. Used to come in 16 oz pack for $2.27, yesterday, for the first time it was 12 oz. for $2.27.

  3. Ya think the price of oil has anything to do with that?

  4. Price inflation is on the way up; but it may mitigate. The US Bureau of Labor Statistics reports The Producer Price Index, PPI, for finished goods rose 0.8 percent in September, seasonally adjusted. This is largely due to the lingering effect of quantitative easing, which is now exhausting. It’s like looking in the rear view mirror. The question is will a rising 10 Year Interest Rate, $TNX, and a rising 30 Year Interest Rate, $TYX, from deleveraging out of US Government bonds, ZROZ, EDV, TLT, caused by China retribution for being labeled as a currency manipulator, and resulting flight out of Treasuries, seen in the Flattner ETF, FLAT, falling, and the Steepner ETF, STPP, rising, cause price inflation? Some say so, but I am not so sure.

    For people using world major currencies, DBV, as well as people using emerging market currencies, CEW, there may be price inflation as their currencies sink and they have to buy commodities priced in dollars.

    But for those with dollars, price inflation may mitigate. I see not only a credit collapse, but a commodity collapse as well. Commodities, DBC, will be falling lower on lower commodity currencies, CCX. The major problem will be dollar funding for countries that go out and buy commodities in dollar as credit liquidity evaporates. The CME Report warns in timely fashion Liquidity in Europe begins to evaporate.

    And the major problem will be for those with no income or reduced income to buy consumer goods. The price of these will indeed be steep to those who don’t have the income to buy them.

  5. @anon 10:51am

    "This is largely due to the lingering effect of quantitative easing, which is now exhausting"

    This is incorrect. In fact, the money that was created as a result of both QE1 and QE 2 initially ended up in excess reserves, meaning it never made its way into the system.

    This is changing and has been for the past few months. Indeed, it is the new money entering the system now that is exacerbating price inflation. No immediate end appears in sight.

  6. "Ya think the price of oil has anything to do with that?"

    And what increases its price? Speculation with fiat funny money.

  7. Dear Mr. Wenzel,

    Have you read Vijay Boyapati paper at Mises?

    "Why Credit Deflation Is More Likely than Mass Inflation: An Austrian Overview of the Inflation Versus Deflation Debate" by Vijay Boyapati

    If so, and you disagreed with it, I would really like to know why.

    One issue that really is incontestable, I think, is that reserve requirements are less important than capital requirements (http://en.wikipedia.org/wiki/Capital_requirement) at each bank. It would seem to be capital ratio requirements that are preventing lending more than anything else.

    I did note that in a recent blog entry you showed lending is trending back up *except* for housing. That's a fairly big *except*.

    I would really *love* to see you comment on Boyapati's paper in a blog entry -- especially if you have some critical remarks.

    I mean, I see one possibility is the hyperinflation coming the way a tsunami would, the tide recedes dramatically confusing all the people at the beach (serious deflation) and then all the sudden the water rushes in covering everything (hyperinflation).

    I wonder if Austrians in the interim might look "bad" as they keep predicting a serious price inflation that never seems to arise.

    Matt Dioguardi

  8. @Matt
    Not all Austrians are predicting price inflation.
    Shedlock has been a deflationist; Prechter and Bonner are too.
    North, Wenzel, Saxena, and Walayat all seem to be on the inflation side.
    I think it will be mixed and kind of massaged along, so there will be ups and downs, with inflation in some things and not in others.

    The point is everything is so politicized and driven by events, that no one can make sure fire predictions based on the economics alone.

  9. Krugman and the Keynesians who seem to think that money creation does not need to inflation are wrong yet again.