The conflict in Iran was expected to raise energy prices, especially oil and gas, which in turn tends to affect the price of everything else. This week we have both a consumer price index and producer price index release and they did in fact show the expected uptick in inflation. The consumer price index supposedly measures prices at the retail level, or what consumerz buy. There are better measures than that used by the Bureau of Labor Statistics, but it is likely to be directionally accurate. The headline number for April was a six-tenths of a percent increase month-over-month, driven by energy costs, but other catgories rose as well. Year-over-year the increase was 3.8%, well above the Federal Reserve’s “target” of 2%. Shelter and food costs increased, and these are other items consumers are sensitive to. Medical care services prices did not rise at all, which is some relief. Core CPI, which eliminates food and energy, was up .4% month-over-month and 2.8% YOY. Service prices are rising faster than those for goods. (BLS CPI Release)
The producer price index attempts to measure prices further up the chain from the ultimate consumer. It should give a forewarning of what CPI might show in future months. That index also rose significantly in April by 1.4% month-over-month and 6% YOY. Trade margins drove much of the increase; this is a volatile and somewhat hard to understand category. Other services and energy also rose, while construction costs actually declined slightly. The overall picture appears to be that if energy costs stabilize, once the recent rise works its way through all products and services, inflation will likely subside as well. But who knows when or how things will stabilize in the Mideast. I suspect thst every country other than Iran is trying to figure out how to export via pipelines or other methods that avoid the Persian Gulf, but it will take time for that to be actualized. (BLS PPI Release)
