Prices, Inflation Soar to New Heights

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The Biden economy is beginning to take hold and the effects of reckless economic policies are becoming evident.

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Producer Prices Rise

Even as the reopening of the US market, following COVID-19 lockdowns, gained traction, producer prices climbed to their highest level on record in May 2021.

According to the Labor Department, the producer price index for final demand climbed at a 6.6 percent annual rate last month, up from 6.2 percent the previous month. May’s yearly temperature was the highest since records began in November 2010.

As a consequence of the price fall at the start of the epidemic, the annual data has a base effects skew.

Prices increased 0.8 percent on a monthly basis, up from 0.6 percent the previous month. Refinitiv polled analysts, who predicted that prices would rise 6.3 percent year over year and 0.6 percent month over month. The 1.5 percent increase in pricing for final demand goods accounted for over 60% of the rise. The cost of final demand services increased by 0.6 percent.

Since May, rates for metal alloys increased by 6.9%; meanwhile, prices for beef and calves, diesel, petrol, hay, hayseeds, and oilseeds, and automobiles all increased. Fresh produce and melons were down 1.9 percent, as were primary basic organic compounds and tarmac.

After lowering rates to close to zero (and launching unlimited asset purchases last year to offset the economic downturn induced by shutdowns aimed at limiting the spread of COVID-19), some investors are questioning whether the Federal Reserve will need to change its policy path.

At the end of its two-day meeting on Wednesday, the Federal Reserve is not expected to make any policy changes. Investors, on the other hand, will be looking for evidence that the Federal Reserve is about to change course.

Inflation Predictions

As shown in a new study from the Federal Reserve Bank of New York, inflationary predictions for the coming year rose for the seventh month in a row in May, reaching a new record.

Last month, median one-year inflation estimates jumped 0.6 percent to 4 percent; this marks the highest level since New York Federal Reserve Surveys of Customer Expectations started in 1982.

Inflation forecasts for the next three years increased from 3.1 percent to 3.6 percent, trailing behind the August 2013 figure.

Future inflation was most concerning to those over 60 years of age and those with a high school diploma or less.

A revolving panel of about 1,300 household leaders participates in the internet-based survey for up to a year, with a nearly equal number cycling in and out each month.

Inflation forecasts for the short term have been rising at a quicker rate than inflation forecasts for the medium term in recent months. The disparity of 0.4 percentage points between both the two is the largest in history.

The disparity occurs as the Federal Reserve informs that because of a base effects skew (that occurred when prices fell at the onset of the pandemic), it expects inflation pressures to be temporary.

For the third month in a row, median year-ahead home price change forecasts jumped 0.7 percentage points to 6.2 percent, setting a new high. Home price increases were the most concerning to respondents in the West and South.