January 21, 2022

US wholesale price inflation cools in final month of red-hot year | Business and Economy News


The Producer Price Index downshifted in December, but the month capped off a year of record wholesale price inflation.

First, the good news: wholesale price inflation in the United States downshifted in December.

Now for the bad: the declaration capped off the largest calendar year increase in wholesale inflation on record.

The Producer Price Index (PPI), which measures changes in the prices businesses fetch for goods and services, rose 0.2 percent in December, the US Bureau of Labor Statistics said on Thursday.  That was a sharp slowdown from the previous month’s 1 percent rise and marked the most modest increase in wholesale prices since November 2020.

But what a blistering year it was for inflation. Wholesale prices moved up 9.7 percent in 2021 – the largest calendar increase on records dating back to 2010.

Businesses have been grappling with higher costs for raw materials as the economy continues to wrestle with supply chain snarls and shortages stemming from COVID-19 disruptions.

Workers, who are in short supply in the US, are also demanding higher pay and better benefits for their labour.

As businesses get hit with those higher costs, they are passing at least part of them on to consumers.  That was evident in the prices consumers paid for goods and services in December, which saw their largest annual increase since 1982.

Last year’s inflation spikes were largely driven by demand for goods outstripping supply, as consumers flush with cash but still wary of paying for customer-facing services like airline flights and dining out, unleashed pent-up demand.

Policymakers at the Federal Reserve see inflation moderating by the middle of this year, and the December PPI data did send encouraging signals that their forecast could come to pass.

Prices for final demand goods fell 0.4 percent last month – the first decrease since April 2020. Falling food and energy prices led the decline. And price rises for services also downshifted last month.

Strip out food and energy, which tend to be the most volatile component of inflation indexes, and the core PPI rose 0.4 percent in December, after rising 0.8 percent in November.

But despite the signals of cooling inflation, analysts warn there are potential headwinds in the short-term outlook. The fast-spreading Omicron variant of coronavirus has triggered flight cancellations and a wave of workers calling in sick – exacerbating supply chain disruptions and an already acute labour shortage.

“Persistent supply disruptions will underpin producer prices near record levels in the near term, especially given a rapidly spreading Omicron variant that will fan inflation pressures,” said Mahir Rasheed, US economist at Oxford Economics.





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