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New BLS Data Shows Inflationary Pressures Just Keep On Creeping Up

The cost of doing business  is up — mostly, as new government data indicates, because inflation is powerfully on the rise. Figures released by the Bureau of Labor Statistics on Tuesday (June 15) reveal the Producer Price Index (PPI) rose at a record rate in May, with a 6.6 percent surge representing the biggest 12-month price jump since the BLS first started tracking the data in 2010.

Measured on a monthly basis, the producer price index for final demand rose 0.8 percent in May, ahead of analyst estimates of 0.5 percent.

Inflation Pushing Up On Two Fronts 

The dominant force in pushing inflation is goods inflation, which is up 1.5 percent, while services inflation was up only 0.6 percent. But while services might have inflated less than goods, it’s in line with a general inflationary trend visible in the segment since the start of 2021 — with May representing the fifth straight month that index has increased.

Excluding food and energy, the 12-month final demand PPI rose 5.3 percent — another all-time high since the BLS first started tracing the stat in August of 2014. Notable increases in the month were driven by nonferrous metals (necessary to high-tech product production), which rose 6.9 percent in May. The price of grains spiked a whopping 25.7 percent, while oilseeds increased 19.5 percent, and beef and veal rose 10.5 percent.

And producer price inflation isn’t the only pain in the retail market this week. The National Retail Federation (NRF) has formally written to the Biden administration requesting a meeting to discuss relief from the U.S. port congestion that is creating supply chain havoc for merchants.

“The supply chain disruption issues, especially the congestion affecting our key maritime ports, are causing significant challenges for America’s retailers,” NRF president and CEO Matthew Shay wrote in the letter.

According to NRF data, over 97 percent of retailers surveyed said they have been impacted by port and shipping delays while 70 percent report they have had to add two to three weeks to their supply chains, and 85 percent experiencing inventory shortages as a result of disruptions. And while port congestion was named as the leading problem, lack of carrier capacity and lack of shipping containers overseas were also cited as problems pushing down on the merchant community.

A situation, the letter noted, that is further pressing price inflation, as “many smaller retailers may have no choice but to pass along these costs, especially as they face other challenges with reopening their businesses.”

The Countervailing Trends 

Not all the news, however, points to price increases. The cost of lumber, which had been on a rather steep incline for much of 2021, has suddenly started coming down, according to The Wall Street Journal.

Lumber futures, after hitting record levels in early May, had dropped 42 percent by June, with futures falling on 14 of the last 15 trading days. Meanwhile cash lumber prices are also crashing with pricing service Random Lengths reporting its composite index has seen its biggest month decline after nearing record levels in May.

But although the bubble has popped and the runaway price increases seem to have stopped, the inflationary trend is still on in lumber — even after the massive price declines of the last few weeks, lumber futures remain nearly three times higher than what is typical for this time of year. And though some hoarders are now being persuaded to part with their overloaded inventory, lumber producers and traders expect prices will remain relatively high due to the strong housing market.

What’s Next 

As for how durable this inflationary trend will be, that remains a subject of some debate.

The Federal Reserve’s position is that current increases are transitory and a result of supply and demand falling out of balance because of the pandemic and will normalize as the era of lockdowns ends. But Bank of America CEO Brian Moynihan maintains that the notable inflation spikes are a sign that it’s time to think about increasing interest rates as the pandemic is passing.

And though the Fed meets this week and should give its opinion of the transitory nature of the inflation increases, no major action is anticipated.

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