Excluding food, energy and commercial services prices, which measure changes in margins received by wholesalers and retailers, the inflation index rose 6.9% last year, compared to a modest 1.3% increase in 2020.
“It wasn’t as bad as many had feared. US producer price inflation rose 0.2% in December, the smallest increase since November 2020,” Jennifer Lee, BMO’s chief economist, said in a note to clients. “And given that the average monthly increase over the past 12 months was 0.8%, well, 0.2% is good news.”
What has become more expensive?
More than half of the service price increases came on the back of higher prices for commercial services.
Prices of fuels and lubricants also rose, as did passenger services, food retail, machinery, and the wholesale trade of vehicles.
Overall, the commodity price index actually fell in December, marking the first decline since April 2020 when the worst of the pandemic appeared in economic data. In particular, energy and food prices have fallen.
The Producer Price Index tracks the prices of finished goods and services sold to final consumers, as well as goods, services, and maintenance and repair work sold to companies that manufacture those final products.
On the upside, prices for parts and maintenance fell in December. The index of manufactured goods recorded its first decline since April 2020, while the index of non-manufactured goods recorded its first decline after eight consecutive months of increases.
This eases the burden of passing on higher costs to end consumers, at least for the time being. Meanwhile, median demand for services edged up, rising 0.8%, the biggest advance since June.
Will inflation continue to rise?
Inflation is likely to continue rising, at least in the near term.
“It’s still a lot hotter than it was a year ago,” he told me.
Although economists expect some slowdown in price increases, it will take time for inflation to reach 12-month rates.
“This sets the tone for what to expect from inflation in 2022: Prices that have jumped the most in 2021, such as energy, food and used cars, will increase much more slowly or even fall,” said Bill Adams, chief economist at PNC. “At the same time, inflation will widen to other price categories – companies that saw increases in labor and material costs in 2021 will pass these higher costs on in 2022 as final demand remains strong.”
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