Producer Prices for Goods Rise and Fall with Oil Prices

Alan ReynoldsEver since Federal Reserve Chairman Jerome Powell described cyclical or COVID-related elements of inflation as "transitory" (an ambiguous phrase now retired), critics repeatedly seized onyear-to-year changes in price indexes as evidence that inflation was insteadaccelerating every month.As I have noted before, however, the stubborn rise in year-to-year inflation —even when monthly rates slowed in the third quarter—was partly because ofbase effects (prices indexes were often flat or falling in the 2020 pandemic) and particularly because ofcompounding: If we keep adding the same monthly increase to a price index, the year-to-year change must keep moving higher. And adding new low-inflation months cannot quickly reverse the immobile 12-month average.One especially important price, however, has always proved to be transitory (temporary) in the past —namely, large spikes in the global price of crude oil. As I documented last month, "year-to-year percentagechanges in the CPI… invariably go up and down with year-to-year percentage changes in the price of oil. Higher oil prices also raise non-energy costs such as transportation" and energy-intensive goods.Is that also true of the producer price index (PPI)? In a word, yes.The Wall Street Journal writes, "The Labor Department [reported] thatits producer-price index rose 9.6% in November from a year earlier, the most since records began in 2010." On the contrary, most PPI records began in 2013. It is only the "fina...
Source: Cato-at-liberty - Category: American Health Authors: Source Type: blogs