Ugly stuff on inflation rolling out: Thanks, Joe

As Ernest Hemingway once described it: Bankruptcy comes "gradually, then suddenly."

And sure enough, we have Joe Biden's inflation numbers, which certainly have been printing high, as anyone familiar with grocery store shelves can attest.  That's reflected in the consumer price index, which clocked in at 7% last year.

But that's a mere warm-up act.  The ugly one is the leading indicator for CPI, known as the producer price index (PPI), which rose a whopping 9.7% last year, showing a far worse picture than any White House flak could spin.  Embedded in that news is that inflation may get higher.

Producer prices increased by nearly 10% for the year ending in December, the highest rate of growth since the Labor Department began keeping records.

The producer price index measures the average change over time in selling prices received by domestic producers of goods and services. The 9.7% increase is the highest increase since it first started being measured more than a decade ago.

Sure, the economists are trying to claim that the rise is moderating from months past.  The White House characters in charge of this fiasco signal no familiarity with economics at all with this indicator, but here's a primer just what the PPI is, from Investopedia, emphasis mine:

Inflation is probably the second-most-watched indicator after unemployment data, as it helps investors deduce the future direction of monetary policy. The core PPI can serve multiple roles in improving investment-making decisions because it can serve as a leading indicator for CPI. When producers are faced with input inflation, those rising costs are passed along to the retailers and eventually to the consumer.

Furthermore, PPI presents the inflation picture from a different perspective than CPI. Although changes in consumer prices are important for consumers, tracking PPI allows one to determine the cause of the changes in CPI. If, for example, CPI increases at a much faster rate than PPI, such a situation could indicate that factors other than inflation may be causing retailers to increase their prices. However, if CPI and PPI increase in tandem, retailers may be simply attempting to maintain their operating margins.

Economists can also forecast the future movement of the finished goods index by monitoring the intermediate index, and the direction of the intermediate index can be determined by analyzing the crude index. Essentially, the data obtained from monitoring the downhill indicators, those focused on raw materials, can be used to forecast the uphill core indicators. The PPI of finished goods provides a sense of the expected CPI movement.

Basically, PPI tells us what's in store for us as producers take in their raw materials from way down the supply chain and create their finished products.  If their prices go up, the retailers' prices have to go up, because the retailers need to pay the higher prices from their suppliers and raise prices more, just to keep their heads above water.  PPI is what's known as a leading indicator, and Investopedia notes that other than the Friday jobs reports, this one is watched more closely by investors than any other number.

And now we have it: 9.7%, which means that more price hikes are ahead as goods get to consumers — who are spending less as a result.

Here's the next nasty news: respected economist David Goldman (hat tip: Instapundit) notes that the government bean-counters are undercounting inflation:

Shelter accounts for about a third of American household expenditure, and the cost of buying or renting shelter is up nearly 20% over the past year. Yet the Consumer Price Index (CPI) for shelter reported Jan. 12 by the US Bureau of Labor Statistics showed an increase of just 4.2 over the past year.

Private surveys conducted by the big rental sites, Zillow and, show increases of 13% to 18% during 2021, and the Case-Shiller Index of US home prices jumped 18% in the year through October.

Who are you going to believe, to paraphrase Groucho Marx — the US government or your own eyes?

Part of the discrepancy involves a simple time lag. The US government looks at the present cost of housing while the private rental surveys register the cost of a new rental. It takes a while for leases to expire and new, higher-cost leases to take effect.

Changes in the rent index predict changes in the CPI shelter index with lags up to eight months. That explains at least part of the divergence of the CPI rent inflation number from the private rental surveys.

This time, the CPI rent inflation rate of 4.2% undershot the private rental data. As old leases expire and new leases are written, the CPI index for shelter should rise by 14 percentage points. Shelter makes up 32.3% of the CPI, so 14 percentage points in the cost of shelter would add another 4.5 percentage points to the headline inflation number.

That’s an additional 4.5 percentage points on top of the 7% annual rate of CPI inflation. In other words, accurate accounting for real-world shelter costs would put consumer inflation in the US around 10% a year. And double-digit inflation would cause a market meltdown.

Goldman forecasts rate hikes coming bigger, longer, and sooner with this kind of hot-fire inflation now in the pipeline. 

We already see the impact of this inflation in falling retail sales (consumers have less to spend), unexpected, of course, and worker wages shriveling.

Issues & Insights has a stellar piece on Biden's inflation brought on by turning on the money presses to expand the size of government:

Inflation is not an equal-opportunity destroyer. It is a disease that hurts the middle class and the working poor the most.

A perfect example: the surge in energy prices, following Biden’s imposition of draconian curbs on fossil fuel to reverse climate change.

Biden has been effective: His policies to destroy the fossil fuel industry have led to soaring energy prices, with the Goldman Sachs Commodity Index energy gauge shooting up 59% last year. Things aren’t getting better. Since just before Christmas, when crude oil prices stood at about $66 a barrel on the New York Mercantile exchange, they’ve spurted to about $81 a barrel, a 23% gain in just a month.

Because energy makes up a far larger share of the household income of the poor, it amounts to a massive green tax on those least able to pay it. Just wait until heating bills come due in February.

Worse still, Biden’s inflation erodes the very income that the poor and minorities rely on to survive. It’s a cruel double whammy, perpetrated entirely by the so-called Party of the Poor.

(I bet my old colleague from my Investor's Business Daily editorial page, Terry Jones, wrote that.  He's brilliant.)

The news that producer prices are rising, and inflation is here to stay, is a nightmare.  Monster government spending has left the U.S. with huge debt, a huge deficit in excess of 100% of GDP, and now more price hikes ahead for all of us.  Biden doesn't seem to mind this sort of thing, given his solicitousness toward Jimmy Carter, but nobody expected him to try to top Carter's record, which, to be fair, was brought on by monster government spending from the previous administrations in the War on Poverty and the Vietnam War.

But you'd think Biden would have learned from history.  He has that advantage that Carter didn't.  But he hasn't.  Inflation to him is a matter of "build back better."  We've got three years of this trash ahead.  The only thing to be done now is to block him from harming himself and the country as is rightly done with any senile old fool who doesn't know what he's doing.

Image: Screen shot from CNN video, posted on YouTube.

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