Central banks still view this as “temporary”.
By Nick Corbishley for WOLF STREET:
Producer prices for German industrial products in March rose 0.9% from February, after increasing 0.7% in February from January, and after rising 1.4% in January from compared to December, the largest month-over-month increase since 2008.
Compared with March last year, producer prices jumped 3.7%, according to the German Federal Statistical Office (Destatis), the largest year-over-year increase since November 2011 The surge began last fall, after sharp declines earlier in the year:
Part of what caused the 3.7% increase from March of last year – but not the surge in recent months – is the ‘base effect’, since in February and March of last year last year the producer price index was down, and the last year after – annual results are measured from these low points.
But factory prices rose month by month for the seventh consecutive month – with sharp increases in the past three months. And it has nothing to do with the base effect.
Prices for intermediate goods jumped 5.7% year-over-year in March, the fastest since July 2011, mainly due to sharp increases in prices for secondary raw materials (47%) and prepared foods for farm animals (16%). There were also increases in consumer durables (1.4%) and energy (8%), which are largely attributable to a sharp rise in electricity prices (9.6%) .
Producer prices are now rising rapidly in major manufacturing economies.
In China, input costs rose 4.4% in March from a year earlier, from 1.7% in February. This is the biggest increase since July 2018. As the world’s largest exporter, rising prices in China are fueling inflation around the world.
Inflation dynamics are intensifying due to a constellation of reasons, including a global economic recovery fueled by historic amounts of fiscal stimulus – unprecedented growth in government spending and borrowing – money printing of the central bank, supply chain shocks, shortages and distortions, rising shipping costs, and growing demand for certain commodities and consumer goods in developed countries, particularly in the United States. United.
The surge in commodity prices in China has already caused consternation among key policy makers. The Committee on Financial Stability and Development recently called for efforts to stabilize prices. Authorities should “keep a close eye on commodity prices,” the committee said earlier this month.
China has a long history of lower-priced exports, with products produced there cheaper than in the United States and other developed markets – the much-vaunted advantage of globalization that has led to rampant relocation to the United States. United and Europe as American and European companies invest in China and other cheap countries, instead of at home. But that has now ended: exporters of deflation have become exporters of inflation.
In the United States, producer prices have taken off. Compared with March of last year, the PPI jumped 4.2%, the biggest year-over-year increase since 2011. And the Consumer Price Index is starting to follow, well that the Federal Reserve promised to reject rising inflation and blame it. the “base effect” and “temporary” factors.
In Germany, various factors, including the ECB’s looser-than-ever monetary policy and the end at the end of last year of reduced value-added tax rates, suddenly took a turn for the worse. increases the consumer price index by 1.7%. Inflation is also increasing in neighboring countries, reaching 1.9% in the Netherlands and 2% in Austria. But in the most depressed economies of southern Europe, inflation is lower, at 0.5% in Portugal and 0.8% in Italy.
There is growing concern that inflation will default again. In Germany, inflation is now expected to reach 3% to 4% later this year, including by Bundesbank President Jens Weidmann who, in an interview in February, had already predicted that inflation would be above 3% d ‘by the end of the year.
“One thing is clear: the inflation rate will not stay as low as last year permanently,” he said. Noted, adding that the ECB will only be able to make monetary policy adjustments once inflation rates have jumped. And he urged the ECB to act when consumer price inflation takes off: “There must be no lack of resolve, even as the costs of financing heavily indebted countries rise.”
But the ECB is focused on keeping the euro area cohesive, with an eye on southern member states. And with three of its four largest economies – France, Italy and Spain – indebted by 115%, 120% and 156% respectively, even a slight hike in the ECB’s benchmark interest rate, which is negative for years, might prove too much for them.
At least in the short term, the ECB will continue its easy money policy. On Thursday, ECB President Christine Lagarde reiterated that a rise in inflation this year would not prompt the ECB to tighten its policy, that any increase would be seen as the result of “idiosyncratic and temporary factors” and that underlying inflationary pressures would “remain subdued”.
But surging producer prices in exporting countries, like Germany and China, and even the United States, are starting to translate into widespread spikes in consumer price inflation. In some countries this has already taken off on a large scale, notably in Brazil, Mexico and (as always) Argentina, Turkey and Russia. And these volatile inflation rates have led to shocking and impressive rate hikes in some of these countries. By Nick Corbishley, for WOLF STREET.
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