Producer prices soar 7.8% annually in July, most on record

Producer prices accelerated at the fastest annual pace on record in July as supply chain disruptions and materials shortages continued to put upward pressure on costs.

The producer price index for final demand increased at a 7.8% pace for the 12 months ended July, according to the Labor Department. The July print was faster than the 7.3% pace recorded in June and ahead of the 7.3% rate that analysts surveyed by Refinitiv were expecting. The reading was the strongest since recordkeeping began in November 2010.

Producer prices rose 1% in July, matching the increase from June. Analysts were anticipating prices would grow at a 0.6% pace.

Nearly three-quarters of the increase was due to the 1.1% rise in prices for final demand services, the largest on record. Almost half of the increase was due to a 1.7% rise in margins for final demand trade services, which measure changes in margins received by wholesalers and retailers.

The Biden administration is currently working on a $2.3 trillion infrastructure bill in addition to another $2 trillion American Families Plan infrastructure bill. “Together, the ideas inside these plans aim to redefine what infrastructure is, by bolstering ‘human infrastructure’ along with everything else,” writes Slate. “[It’s]a new kind of American populism.” More accurately, it’s American socialism.

This spending comes in addition to the regular $1 trillion budget deficits the government was running before it began shutting down the economy.

And contrary to Fed Chairman Powell’s claims, the economic laws of supply and demand are asserting themselves. More money (due to money printing, government spending and government handouts) chasing a constant or shrinking supply of goods (due to the global lockdown) means the same goods and services cost more dollars.

“A little inflation feels good at first, because wages are rising, and people feel richer,” investment adviser Jared Dillian said. “But the laws of economics are not to be conned. What Powell is doing is what I call central bank populism. [T]here is inflation in the beginning. At the end, there is revolution.” …

Powell and the Fed assure us that the inflationary effects will be moderate and temporary. His comments sound eerily similar to former Fed Chair Ben Bernanke’s comments that the subprime mortgage bubble was contained. That infamously led to the Great Recession of 2008.

One big difference between that crisis and this one is where the Federal Reserve has directed its response. In 2008, the money it created through quantitative easing was injected into the banking system. It caused asset inflation in financial sectors like the stock market and the housing market, but it kept the banks from collapsing and caused less inflation in consumer goods than many people feared. This time, the cash is being sent directly to individuals and businesses. When spending increases, the velocity of money could send inflation soaring and the value of the dollar plummeting.

In other words, massive money printing did not fix the fundamental economic problem in 2008, nor has it fixed the problem this year. We temporarily papered over a volcanic economic upheaval, and it cost us mountains of money to do it.

Read more about the problem of money printing and inflation, as well as its solution, in our July 2021 article “What Does Free Money Cost?”