Producer prices are on the rise. What will this mean for consumers?


The prices of the people who make the things we buy – the producers – soared in September. As measured by the Producer Price Index, inflation stood at 8.5% on an annual basis. It’s an improvement over August, July and June, but an ugly and plain number.

“We’re not off the hook yet on price pressures,” said John Leer, chief economist at Morning Consult. “It’s clear that producers are continuing to experience strong price growth, and I expect that will continue to impact consumer inflation going forward.”

The big drivers for producers were food and especially services.

“Much of this is due to high labor costs. It’s a function of the tight labor market,” Leer said.

This of course goes to the heart of what is so dangerous in this economic moment. To dampen inflation, the labor market probably needs to slow down. And a slowing labor market can very quickly look like a recession.

Still, producer prices are different from consumer prices, and for Thursday’s consumer price index, there are signs that inflation may be waning.

Take, for example, used cars.

“Used cars have led inflation up, they are likely to lead inflation down,” said Alan Detmeister, economist at UBS.

He said wholesale used car prices were down almost 8% in 11 weeks.

Clothing prices could be about to drop significantly, Omair Sharif told Inflation Insights.

“You read a lot more about clothes that are heavily discounted, you know, at Walmart, Target, Kohl’s,” Sharif said. “So everyone is trying to move inventory.”

Sharif said when you look at month-to-month changes, Thursday could finally bring some good inflation news.

“I basically think tomorrow will be the start of a series of much weaker underlying inflation readings of the type that the [Federal Reserve] waited to see all year,” he said.

Now that leaves out food and energy, and we need to travel and we need to eat. These elements are notoriously volatile and difficult to predict.

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