Inflation at the wholesale level rose 8.5% in September
September’s Producer Price Index (PPI) came in at 8.5% on a year-over-year (y/y) basis and 0.4% month-over-month (m/m) basis, according to the Bureau of Labor Statistics (BLS). Both numbers are higher than expected. Goods (ex-food & energy) added nothing on a m/m basis, but services (which are stickier) were up 0.6% m/m. Not great news in the fight against inflation.
The Producer Price Index (PPI), produced by the Bureau of Labor Statistics (BLS), is an index that measures the average change over time in prices received (price changes) by producers for domestically produced goods, services, and construction. PPI measures price change from the perspective of the seller.
BREAKING: September PPI up 0.4%. Rick Santelli breaks down the number: pic.twitter.com/PJRP6JMXb9
— Squawk Box (@SquawkCNBC) October 12, 2022
Inflation operates much like a tax, a particularly egregious one that disproportionately falls on the poor and leads to a variety of economic problems, including, as we’re seeing, higher interest rates, slow economic growth, and reduced incomes, according to the Tax Foundation. Inflation reduces every Americans purchasing power.
With inflation stubbornly running high, bondholders and consumers bear much of the burden of inflation over the long run, however a new Congressional Budget Office (CBO) report reveals that lower- and middle-income households are disproportionately shouldering the burden of this current inflation wave.
Inflation is a burden on all those who use U.S. dollars, but the burden varies considerably across users. For instance, it falls particularly heavy on lenders, who subsequently are repaid in less valuable dollars.
In contrast, borrowers benefit from inflation, with the single largest beneficiary being the federal government, as Treasury debt is repaid with less valuable dollars. Publicly held Treasury debt is currently about $31 trillion, larger than the size of U.S. economy measured by GDP.
The U.S. gross national debt has hit a record $31 trillion, the Treasury Department says, adding to economic worries that include high inflation and rising interest rates. https://t.co/Vhpb3du9ct
— The Associated Press (@AP) October 5, 2022
There is a long history of the federal government using inflation, or money creation, to finance spending instead of taxes, particularly in times of war, states the Tax Foundation. For example, the sharp increase in federal spending during World War II produced large fiscal deficits that were financed by Treasury debt. The debt was purchased by the Federal Reserve through printing money.
References:
- https://www.bls.gov/news.release/pdf/ppi.pdf
- https://taxfoundation.org/inflation-regressive-effects/