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Continued signs of 3-4% inflation at the producer level




Inflation remains alive and well at the producer level. Headline (total) prices are rising at roughly a 4% annual rate for the past two years, and although the core measures dipped below  1% early last year, it has now risen at a 3.5% annualized pace over the past three months. The very strong performance of virtually all commodity prices is definitely having an impact on the early stages of the production process (prices of crude goods are up 10% in the past year, and intermediate goods are up 6%), and it is reasonable to assume that at least some of this will be passed on to the consumer. For that matter, the last place that "inflation" will show up is in the CPI. We have plenty of warning signs that it is going to happen, and it would seem that the only unknown variable is by how much inflation will rise.

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