Producer Prices Have Grown Just 0.85% Over the Year, Despite Accelerating in July

Producer prices shot up during the pandemic, peaking at a level 19.16% higher than before the pandemic. Over the past year, they have largely stabilized, growing only 0.85% over the year. 

July, however, saw an unwelcome acceleration, driven by rapid growth in the price of investment-related services. The spike should not cause too much concern unless it is sustained over the coming months. We expect that it will turn out to be a blip, and that producer prices will be relatively stable over the coming year. Note that investment-related fees are correlated with the stock market’s performance, and that the cost of having funds under management rises in proportion to those funds. In other words, the July increase in the Producer Price Index is somewhat anomalous and doesn’t really reflect inflation at all. 

In addition to portfolio management, and securities brokerage, dealing, investment advice, and related services, other prices that moved higher included wholesale machinery and vehicles; passenger transportation; building materials; and courier, messenger, and U.S. postal services. Those increases were only partially offset by declines in retail property rents, natural gas, diesel fuel, corn, and industrial chemicals.  

This is the second straight month of increases in the PPI for final demand, following two months of outright declines (producer price deflation, not just disinflation). What matters more for businesses and the prices they pass on to consumers, however, is cumulative PPI inflation, not month-to-month inflation. Producer prices are now 18.84% higher than before the pandemic, and consumer prices are 17.40% higher. In the absence of the pandemic inflation surge, those prices would only be about 7% higher now.

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Julia Pollak is Chief Economist at ZipRecruiter. She leads ZipRecruiter's economic research team, which provides insights and analysis on current labor market trends and the future of work.

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