November 30, 2021

Why “Transitory” Inflation Isn’t Heading Anywhere

More & more companies are raising costs to offset surging costs.

Consumers have already been hit hard in the finances by inflation this year, with  CPI up 5. 4% year-on-year in Sept .

But consumer prices are only part of the inflation formula. Producers of goods and solutions also face rising prices in an inflationary environment. Manufacturer price increases have been even more dramatic than the rise in CPI, and we’re starting to observe those higher prices drip down to consumers.

This is yet another sign that inflation is definately not “ transitory. ”

The Producer Cost Index in September has been 0. 5% month-on-month within September. Final-demand goods costs were up 1 . 3% on the heels of a 1% gain in August. Calendar year on year, the PPI was 8. 6% in September.

The particular CPI has lagged the particular PPI so far this year. Numerous producers dragged their foot when it comes to passing on their higher costs to their customers. They will initially bought into the transitory inflation narrative and believed if they could just hold on, their costs would come down again. But it’s becoming increasingly crystal clear that  these price increases are forever . As the transitory inflation narrative continues to unwind, more companies are passing on these increased costs to their customers. This will likely continue an inflationary spiral.

Over the last couple of months, we’ve seen some businesses raise prices to offset their costs.   FedEx announced big rate hikes last month . Earlier this summer,   Chipotle raised menu prices , and companies such as Procter & Gamble, Pepsi, Kimberly-Clark, General Mills, Unilever all raised prices as well.

The trend associated with companies passing costs onto consumers appears to be accelerating.

According to  Reuters   report , big US manufacturing companies including Common Motors, General Electric, 3M and Boeing are experiencing higher costs “ but agreed the hit to profits can be mitigated by charging higher costs for their goods.

On Wed, Harley-Davidson announced it will increase surcharge pricing in the US to offset higher pricing. The organization said it is also exploring increasing surcharge costs globally.

In its most recent earnings report, McDonald’s said it offers increased prices to keep pace with surging costs.

Meanwhile, 3M reduce its full-year earnings perspective and said it will increase prices. 3M produces an array of construction and building items. Its price hikes will likely ripple through the construction market.

Of course , as soon as companies raise prices, they will rarely drop them.

Companies that postpone on raising prices in order to offset their costs danger crushing their earnings. That could not bode well for any stock market that continues to ignore rising prices and  surge to new information .

Popular analysts blame supply string bottlenecks for the continued rise in producer prices. As  Reuters   documented, “ Companies across the globe sounded the alarm on supply issues months ago which have pushed prices higher on raw materials from chemicals to steel. ”

This certainly contributes to the issue, but the mainstream continues to ignore the bigger driver of inflation – the Federal Reserve. It continues to  create inflation   at breakneck speed. Despite taper talk,   the Fed continues the “ emergency” monetary policy   it started at the beginning of the pandemic. Virtually every week, the Fed stability sheet expands to a brand new record level, as the central bank pumps billions in to the economy.

Whether or not caused by supply chain problems, Fed policy, or several combination of the two, the carried on rise in producer prices undercuts the “ transitory” pumpiing narrative. The bottom line is more money coming out of your wallet for the things buy every day.

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