Producer prices are still moving up as inflation concerns linger

Producer prices increased by more than expected in August, a reminder that inflation pressures continue to linger in the economy.

Why it matters: Producer prices reflect what businesses pay for the materials that go into the goods they eventually sell to their customers. While businesses will make an effort to absorb some of those higher costs, they’ll pass some of the costs on through consumer price hikes.

By the numbers: The Producer Price Index climbed by 0.7% in August month over month.

  • While this was a deceleration from July’s 1.0% jump, it was nevertheless higher than the 0.6% rate economists were expecting.
  • On a year-over-year basis, the index was up 8.3% in August, which was higher than last month’s 7.8% print. 
  • This is the highest reading since the Bureau of Labor Statistics started tracking this metric in 2009.

What they’re saying: Many economists are putting the blame on supply chain issues that are arguably transitory in nature.

  • “The smaller month-over-month increase and recent evidence indicating supply chain bottlenecks are no longer intensifying suggest a peak in producer inflation may be near,” Marc Zabicki, director of research for LPL Financial, says. 

Yes, but: “There is more risk from supply chains if they continue to be disrupted by virus outbreaks,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, warns.

The big picture: High inflation readings will continue to put pressure on the Federal Reserve to dial back its stimulative monetary policy soon.

  • “If the Federal Reserve is not careful, its continuous dismissal of inflation as transitory could end up constituting a material policy mistake that would risk undermining economic growth, derailing the Biden Administration’s economic reform program, and fueling unsettling financial instability down the road,” Allianz chief economic adviser Mohamed El-Erian tells Axios.

What to watch: The August consumer price report, released at 8:30 am ET on Tuesday, will show the degree to which higher producer prices leading to higher consumer prices.