This kind of inflation is nothing to be trifled with: In services +4.5%; in goods without energy +5.0%; in energy +24%; overall +5.4%; year-over-year.
By Wolf Richter for WOLF STREET.
In a nutshell: Inflation in prices that companies pay each other, not even including energy, accelerated in services to 4.5% and in goods to 5.0%, year-over-year. On top of that, energy prices spiked by 24%. But food prices were barely up, after the surge.
The overall PPI Final Demand rose by 5.4% year-over-year in August (red line in the chart). On a month-to-month basis, it rose by 0.40% (+5.0% annualized, blue line), according to the Bureau of Labor Statistics today. And the July readings were revised higher.
That’s a lot of inflation in prices that companies pay each other, after zigzagging higher ever since the low point in mid-2023, and the Fed needs to stop dilly-dallying around.
The services PPI rose by 4.5% year-over-year in August, and the July reading was revised higher (red in the chart below).
It accounts for 68% of the overall PPI final demand.
Month-to-month, the Services PPI rose by 0.11% (+1.3% annualized, blue).
The transportation & warehousing PPI, which is within the services PPI, spiked by 10.3% year-over-year, driven by higher input costs, including fuel costs (red in the chart below).
It has been zigzagging skyward since the low point in July 2023.
Month-to-month, it spiked by 1.2% (+15.1% annualized, blue).
Core PPI Final Demand, which excludes energy and food components, soared by 4.6% year-over-year (red in the chart below).
The index, dominated by the services PPI, has been zigzagging higher since the low point in January 2024.
Month-to-month, the index rose by 0.16% (2.0% annualized, blue).
The PPI for core goods, which excludes energy and food components, rose by 5.0% year-over-year, and has been in this range for the past four months, the highest since February 2023.
It has been zigzagging higher since March 2024.
Month-to-month, it rose by 0.38% (+4.6% annualized, blue).
The PPI final demand for energy spiked by 24.3% year-over-year and by 4.16% month-to-month (+63% annualized).
The chart shows the price level of the energy PPI, rather than the percentage change.
The PPI final demand for food rose by 0.1% year-over-year, and by 0.1% month-to-month (+1.4% annualized).
The chart shows the price level. After the 36% surge from mid-2020 through February 2025, prices for food that companies buy have essentially been range-bound (some prices, such as egg prices, have collapsed after their huge spike, while other prices have continued to rise).
PPI inflation tracks inflation for businesses. Consumer-facing inflation is tracked separately by the Consumer Price Index (to be released tomorrow) and the PCE price index, and those are somewhat less hot than inflation for businesses. And there are measures that track inflation faced by all economic participants…
Inflation in the overall economy – facing consumers, businesses, non-profits, and governments – which is released quarterly as part of the GDP data, is red-hot and was also revised higher. The inflation rate for the overall economy spiked by 6.4% annualized in Q2 from Q1, and by 4.4% year-over-year.
The Fed – the 12 voting members of the FOMC, chaired by Warsh – need to forget trying to wait this out somehow; they need to quit dilly-dallying around and vote for rate hikes, because this kind of inflation deep and broad in the economy is nothing to be trifled with.
In case you missed it: Why the Gasoline Price Spike Didn’t Derail Consumer Spending despite all Moaning & Groaning: Auto Dealers Got Caught Too
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It’s okay giving out 5k to every adult will get inflation under control. Trust the plan.
Where MAGA Millions failed, maybe MAGA Trillions will succeed.
I wish more members of the Fed Reserve Board read Wolf Street! I hope your plea convinces some of them!
Yes, the second wave of inflation is just getting started. Should have the same effect on the economy as hurricane swell during a king tide…
…which is great for those surfers willing to take the risk and who know how to ride bigger waves as well as negotiate the current etc., Not so good for the coastline…
The Fed will have zero credibility, if they don’t raise by 25 bp next week.
What’s needed is at least three 25 BP hikes by the end of the year to make up for lost time.
Hopefully, this will cause the stock market to pull back at least 20%. Gold & bitcoin need to pull back as well to pay off some margin debt.
Less than a week to find out if the “dilly-dallying” continues.
When Wolf starts writing articles that throw around hocus-pocus & dilly-dallying with regularity, that’s a pretty big sign that the Fed / Treasury have gone rogue.
The Fed lost their credibility a very long time ago, but the real sign to everyone should have been when Hank Paulson when before your “representation and demanded that they bailout the same criminals that caused the great financial fraud through the creation/profiting from MBS and then the Fed not only enabling congress to do this, but then also buying this worthless crap and charging the taxpayer.
Americans do NOT have any representative government, they have OWNERS. The response to 2007/2008 should have made it crystal clear to everyone that America is a feudal system with a very successful casino.
It’s 10 times worse than 07,08…noticed Powell sold his home…the rats leave the ship before it sinks….it’s all been pushed under the rug until Reality breaks…I can see the same math as the bond vigilantes…they could be the last line of defense…have you ever really looked at the puppets in government?? Institutional inertia writes the scripts…
The fed has zero credibility today. They have been dilly dallying for a solid 3 years now.
Houthis take key town leverage Red Sea even more.
Turn up the inflation screws.
WTI now $101 so PPI next month should be quite shocking. In retrospect, when the Fed said inflation was transitory, what they really meant was that the low rate they were reporting was transitory. In reality, it was a crouching lion, a hidden dragon.
“the Fed needs to stop dilly-dallying around”.
I wish your articles could somehow become more noticed…
By the average person who these things that you discuss effect….
And by the kook decision makers that don’t seem to care, and can’t seem to be held accountable for their decisions.
It seems like too many people are good with the status quo…. Until they are not, and repercussions for change are too unbearable.
With that said… changing it might be to unbearable now… which might be the reason we are in the current predicament.
I suppose it is all good… until maybe it is not.
I bet much of this is AI and data centre-derived. The rest is due to oil (particularly diesel) prices.
Raising rates now will do next to nothing and will eventually pop that bubble, do damage to rate-sensitive sectors and further affect the slumping housing market.
This is *not* a wage-and-price spiral inflation.
They can’t and won’t…will hold until after the midterms…maybe…
“Raising rates now will do next to nothing and will eventually pop that bubble, do damage to rate-sensitive sectors and further affect the slumping housing market.”
🤣 Perfect self-contradiction: raising rates to “eventually pop that bubble, do damage to rate-sensitive sectors and further affect the slumping housing market” is exactly what it would take to get inflation back to 2%.
After inflation is out of the bottle, forcing it back into the bottle is a painful process because it doesn’t voluntarily go back in.
There was a ton of buyers at the 30 year auction today. The question is: did anyone get the license plate number of the truck that ran over them afterwards?
Yep, 0-Bessent
“There was a ton of buyers at the 30 year auction today” because the yield was high!!! 5.31% at the auction! That’s what it took to sell those bonds. High yields bring out the buyers. That’s the job of yields. There will always be demand when yields are high enough.
yeah, but after the auction the sell off really accelerated! Now yielding 5.366%
Nothing like buying at the low only to see a new low two hours later.
-g-
Costs to get cars shipped has gone up 40-50% this year. Factors include rising diesel prices, increased maintenance costs, higher insurance premiums, and less available drivers.
How much are you paying for a carrier, from your typical auction city? To give me a feel, I’d like to see a price per load, #/type of vehicles on truck, for x miles.
I think it is an oversimplification to look at ‘one event costs’ when examining rising fuel prices and inflation on specific goods. For example comparing the cost of a truck load of lumber just purchased to that same load last year and attribute it to haulage rates due to fuel increases. A kind of ‘nothing to see here dismissal to the commenter.
I used to work in logging support flying people and supplies into remote coastal logging camps. Our fuel rates ballooned during the Kuwait invasion. We then added a fluctuating fuel surcharge on top of every charge to customer for each mile flown. It changed by events and with every bulk fuel load. The camp operators paid for this, and also paid their own increased diesel costs to cut and haul trees as and into logs. The tow boats had to charge more to get the log booms to the mills on the Fraser River (Vancouver). The mills paid more to operate their machinery to process/cut the logs into lumber, sort, and stack. And finally, the trucking company charged more for the same load to haul to some US lumberyard. Then someone says it only costs this much more to haul the lumber from Vancouver mills to some CA Home Depot. Why so much more if diesel is up only 24%? It should only be the 24% fuel increase for the hauling to the yard.
Same for transporting used vehicles, growing and hauling food…..everything. A 10-20% increase in base energy might raise a finished good by 50%….maybe 100%. Who knows? It isn’t about the final leg of the journey.
This increase in fuel costs could bring things to a screeching halt PDQ, and Govt attempts to support the economy by artificially lowering other costs, say borrowing?, will only make things worse.
Respectfully
Price per mile can vary a lot depending on the route. LA Manheim locations to PHX used to be $350-400. Now its hard to get cars picked up for less than $600. I could get cars to southern FL for $1000, now $1500-$1600. NY/NJ $1300-1500, now $2k. These are for open 8-10 car haulers. Enclosed add another 30-40%. Heavy Trucks and EVs will also cost more.
Thanks!
8or 9 years ago..I needed a small U-haul trailer.
From California Central Coast to Savanna Georgia. Had trouble finding a trailer…and it ended up being $1200.
The man that sold it to me told me that at the time that for every 3 u-hauls leaving …. Only one returned to california… that was the reason it was so expensive.
If it was was from Savanna to Cali… it would only be $300.
He said that he had been renting Uhauls for 40 years. and the last 4 years were 3 pieces of of equipment leaving California for every one returning.
That was his statement 8 or 9 years ago.
Just an old man running a business telling me things and stuff.
You need the 30 year to be at 10 ,percentage points. The US government is so far in the hole that it soon will not be able to get out. The credit rating needs to drop big time, and they need to devalue the dollar. Unfortunately, you could play Brazil in the 70s and change to a new currency and our government would just start the whole overspending thing called government all over again.
Mortgage News Daily: 30YFRM 7.07%
Nice!
The last month has been a blow to Hawaii prices on Maui and BI. The only category staying solid is the $5m+ for condos and $10m+ for homes. Serious price cuts everywhere. Those interest rates are really throwing some sand in the gears.
Yup.
I’m selling a house in Kailua and had to cut $80K from the price to get it to move. Most people can’t afford huge mortgages with 7% rates.
I’m glad I cut the price fast and got out. I couldn’t imagine trying to find a buyer as rates continue to climb.
Same in ski resort towns in the Rockies. That may change quickly. The Fed looks to be negligent with their commitment to fight inflation and our government is surely negligent. Paradigm shifts are happening, it’s hard to keep hiding the truth with reality in our face. I heard a politician recently say inflation is gutting the middle America, yet….blue pill(from movie matrix) isn’t too bad just keep eating that steak
I’m just going to pay for inflation with my $5000 check on going to be given post elections.
Tell you what, I have a bridge that I’ll sell you for $5,000 but the deal is only good TODAY. But you’re getting a $5k check to reimburse yourself in December, so it’ll be a free bridge. So you might as well buy it now while this deal is still available.
The Fed will do nothing. Inflation allows big debtor companies pay back debt with cheaper dollars as consumers go broke.
Nothing new here to report.
This being two months before the mid-term elections, when Republicans are at a big disadvantage with Trump at the helm, raising interest rates before November will be perceived by the MAGA base as a partisan move, and Trump would fan the flames. The Democrats would do likewise, fanning the flames further, pointing to higher rates as a sign that Trump is wrecking the economy. The Fed is independent but also protective of that independence by minding the political winds. The Fed may raise interest rates now, of course, because of the fundamentals that Wolf describes. But then again, what will a 2-3 month delay do?
Powell will be remembered for that more than anything else. That interest rate move did so much to damage the credibility of the Fed.
I would expect there is enough institutional knowledge of this such that it would not be repeated.
The chair is in a tough spot though. This is what a chair is supposed to be there for. Will be an interesting watch.
Want a real humdinger? Raise the rates 5% at next meeting.! That’ll fix the problem.
Wolf,
Your work is second to none! I appreciate your objective approach.
Someone remind me again why Powell cut a few years back?
It’s like Warsh is asking inflation to the prom, instead of you know driving it to the dumpster.
Cmon Warsh
The only politically possible way to manage the debt is inflation.
Wolf makes the argument in other articles that the current debt is serviceable when viewed in terms of the rate of growth against GDP.
Raising rates would just make servicing the existing debt that much harder while also (perhaps) slowing inflation and the nominal growth of GDP, which would be taking things backwards as far as debt management is concerned.
Nobody and nothing internally that is controlled by policy is going to permit a reduction in spending, so debt management is the only option.
Perhaps we will see a 25 BPS raise, but that will be theater.
As Wolf pointed out in his earlier article on Bessents YEN bet, that appears to be working to strengthen YEN and doing so profitably for the Japanese.
Stronger YEN and weaker dollar ? Isnt that whats wanted ? If it means selling Treasury’s then wont that effectively be a rate hike. And as the carry trade unwinds, that will force more selling of US assets. More upward pressure on rates while also weakening USD. Isnt that what is wanted ?
Heaven forbid the last 25 years of tax cuts are rescinded.
As long as we rescind the last 25 years of spending increases as well…
Like watching a train wreck in slow motion.
Volcker’s inflation dragon, long shackled and thought tamed, has been gorging on carelessly discarded tax cuttings and has grown much stronger. It sees the delicious paychecks it has been so long denied and has become once again enraged, inflating in size to the point that its begun breaking its shackles one by one. The people, suddenly sensing the immanent danger, are panicking and running for their lives, taking everything they can fit on their credit cards with them and shouting in terror that they “disapprove” of the situation. The elite look on in consternation over what this could mean for their prospects of reelection.
Knowing there is only one group of heroes who can save them, the people look to the knights of the Open Market Committee. “Please, Mr. Warsh,” they beg, “your ancestors have done it before. Take up your sword.” Mr. Warsh stares down the beast in front of him with a steely-eyed look of determination. Indeed, there is work for him to do…but not just yet. He lacks the one thing he allegedly needs to overcome the creature.
“Mr. Miran!” he says, turning. “Bring me more data!”
“Volcker’s inflation dragon, long shackled and thought tamed, has been gorging on carelessly discarded tax cuttings and has grown much stronger. It sees the delicious paychecks it has been so long denied and has become once again enraged, inflating in size to the point that its begun breaking its shackles one by one.”
This made me laugh out loud.
The Fed’s inaction could be viewed as malicious compliance with Trump. “Oh, you don’t want us to raise rates? Fine, let’s see what happens.”
The ten year could very likely pass 5.0% tomorrow unless some kind of miraculous headline emerges overnight. After that it won’t take too much more before we leave the 21st century behind and move into 1998 rate territory.
Maybe what’s how the Piper was always going to be paid for Greenspan’s dotcom reaction, the housing bubble, QE, pandemic printing and all the Stimmy. Just wash away all of it with cold hard 1990s reality.
“The ten year could very likely pass 5.0% tomorrow unless some kind of miraculous headline emerges overnight.”
Hocus Pocus 5? Or is it 6 now?
Well… the good news is that Navier- Stokes is solved. Apparently you can stir your coffee cup and make a black hole. Really hard to go back to the cup of coffee though.
In the meantime gold and silver get blasted as bessant says treasury must buy treasuries! Please will an adult take charge? Insanity rules the day.
I don’t see an easy end to the Iran war anytime soon. Pretty soon strategic oil reserves are going to be running out. Coupled with a rate increase, tough times are probably ahead. I’m unclear how this is going to trickle down to the hyperscalers which seem to be driving the overall markets up. I would expect some large mergers in the future as funding starts to dry up. What scares me is how desperate is Trump going to get to salvage his legacy as he seems to care about that more than anything.
@Wolf,
Thank you for taking a firm stand. Many times, I have seen you defend some of the FOMC’s reasoning in their decisions. Hopefully, the fact that you had to be so blunt will cause some of your readers that work at the Federal Reserve to realize just how glaringly obvious things have become.
The entirety of Congress needs to be FIRED – terminated. These clowns are disgustingly corrupt and incompetent to the point of putting the country in serious peril, on the verge of collapse due to their outrageous spending problem.
Cutting spending doesn’t get you campaign contributions.
I didn’t see anything in the PPI or CPI reports that will convince a third of the FOMC to change what they voted for in July. The hawks might pick up one vote, but they won’t pick up 4.
Core CPI of 2.4% is close enough to the 2% target to justify a wait and see approach. And as the PPI report noted, over 1/3rd of the increase in PPI can be attributed to energy prices, specifically diesel. Subtract a third from these numbers, and things don’t look so bad. So the dovish case is that we have an oil war problem, not a structural inflation problem.
Fedwatch thinks the odds of a rate hike on Sept 16 are 86.5%. I’m taking the other side of that bet. There’s nothing here to disturb the Dove Nest that is the FOMC. In fact, it looks like the pace of inflation growth is slowing.