In Part 2 of this post, we'll look at August's PPI, August's Import / Export price indices, and then inflation indications from the New York (Empire) and Phila Fed Manufacturing surveys. The key takeaway is that in contrast to the CPI data earlier this week, these data points provide more reassuring evidence that inflation is in fact getting better, and that we're well on our way down the path back to 2% inflation.
Here are the key charts for the PPI. As a reminder, you can think about the Producer Price Index as the cost of goods and services that companies in the CPI have to pay for their inputs. Said differently, PPI measures supplier and vendor prices, or prices of "intermediate" goods and services. Since input costs--both materials and labor--have been key sources of inflation for businesses, tracking the inflation in the costs that businesses pay should be a leading indicator for consumer price inflation. The key takeaway here is that input costs are becoming less inflationary, and in some cases even deflationary (with perhaps the most important category here being in transportation and warehousing costs).
The Import / Export price indices also tell a similar story. These indices track the price trends of goods and services imported and exported from the United States.
Lastly, let's look at the inflation data from the New York and Philadelphia Fed Manufacturing surveys. In these surveys, one of the questions businesses in these regions are asked is whether the prices they're paying for input costs are increasing, decreasing, or staying the same. For August, both surveys reported significant improvement (meaning fewer businesses are calling out that prices continue to go up, and more are saying they're going down). The Texas survey for August has already been released, so I've overlaid that survey as well for comparison's sake. All three surveys point in the same direction, which is that input cost inflation for businesses appears to be rapidly improving. This "soft" data also confirms the "hard" data shown in the PPI and Import / Export price indexes discussed above.
Lastly, it's worth highlighting that the percentage of respondents indicating price decreases--rather than just saying things are no longer getting worse--continues to go up back closer to pre-COVID levels as well. Peeling back this second layer of the onion is encouraging too.
In summary, while CPI earlier this week was discouraging, the week's other inflation data has been much more positive, and on balance, continues to indicate that inflation is generally getting better.
Also, for more survey data on inflation and prices paid / received, I'd highly recommend checking out Ed Yardeni's site, both generally and also specifically on this topic. https://www.yardeni.com/pub/pricepaidrec.pdf.
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