Waiting for Producer Pricing

While markets have never paid much attention to the PPI (producer price index) this time is different. Folks want to know–what are costs doing?

The PPI tomorrow morning is just a ‘warm up’ for the number folks have always paid attention to–the CPI (consumer price index), which will be released on Tuesday morning.

We can be certain of 1 thing–the Fed will be dissecting the reports–trying to find out if they can still call increases ‘transitory’. If the numbers are tame–coupled with last months weak jobs report you can be certain Powell will use the occasion to keep pushing out ‘tapering’. If both reports come in ‘hot’–not sure how Powell will frame them. We’ll see.

19 thoughts on “Waiting for Producer Pricing”

    1. retired broker, here’s a nice chart for you. Over on the left you can click on others. http://www.kitcometals.com/charts/lead_historical.html
      These are just contracts people trade. Not real world end point prices!!
      But they give you trends.
      Its a game to me, I watch the advance or decline over the month and try to guess with other added costs (transport, labor, waste and manufacturing costs) what the next month’s posted price my company sets will be that I have to work off for the following month . Usually my guess is within a penny or two.
      You can use current pricing if your against Calder or Mars for a truckload or two and ask the mill to lock it in. I am honest with my customers and tell them if they need to buy this month or hold off.
      I don’t do technical charts of the stock market, but currently we are at a cross in the building market. Costs of materials have only gone up this year but customers are reporting business has dropped off lately.
      I have switched from answering the phone to calling out. Lets see what the rest of the month brings

  1. Tim and everyone; Do you own EPD??? Iam struggling to read thru this 2,740 page “H R 3684”. Trying to figure out if the feds are going to change the tax structure of these MLP’s. I have called numerous Senators Office’s and get the feeling they have not read all 2,740 pages. Frustrating for sure. I would just add did have a nice conversation with Senator Ben Sasse’s office with his Senior Staff guy. He was telling me about the games the Dems play when it comes to taking the vote. Not getting political but they sound like a bunch of 4th graders. Its truly a shame that all these people can’t work together for the “GOOD OF THE PEOPLE”.

    1. You are thinking about the following 2 bills they are to expand the MLP definition to include green energy companies to more easily attract capital.

      H.R.3249 – Financing Our Energy Future Act – 116th Congress (2019-2020)
      -dead on arrival.

      H.R.2291 – Financing Our Energy Future Act – 117th Congress (2021-2022)
      -Its back. Can not escape committee.

      1. Hello MICAHC; I just read both proposed bills that you suggested. I don’t see anything in either one of them that proposes to actually change the “TAX STRUCTURE OF MLP PIPELINE COMPANIES”. Iam trying to look thru HR 3684 which is much more difficult due to its ridiculous size.

        1. MLPs are a small part of the overall US economy. Law makers are not looking for millions they need trillions to support the upcoming green commitments.

          Taxation and raising funds to support these activities is part of the Ways and means committee purpose.

          If any changes to tax structures are to be proposed they will need to be accepted here first.

          1. Micahc,

            Not looking for millions? I respectfully disagree. In addition to all of the other investment/retirement related threats on the table, the latest wealth redistribution proposal can have impacts on both the common stock and fixed income sides..as well as many of us upon death or before:

            Dow Jones: “Senate Democrats proposed Friday a tax on corporate stock buybacks to help finance $3.5 trillion in new spending programs. The tax would be levied on buybacks that have helped propel the long bull market and enrich America’s share- compensated executives.

            Under the proposal, the 2% excise tax would only apply to shares bought back and retired. It would exempt repurchased shares used to fund employee stock ownership plans. Democrats said the excise tax would bring in about $100 billion in tax revenue over 10 years.”

            ————————-
            More to Chuck P’s post, here’s an estimate to put with what he had to say about MLP’s:

            “A separate proposal would change taxation of business partnerships to bring in an estimated $170 billion over 10 years. Other tax changes under discussion include raising the corporate tax rate to 25% from 21%, boosting the top individual tax rate to 39.6% from 37%, and introducing a tax on unrealized capital gains at death.”

            1. Great post A4I; As always you are on top of your game. Wish the general public would understand how even this huge inflation is just another form of a TAX. They never seem to get it. Our kids will feel the pain for years to come. Spending like drunk sailors in a newly opened brothel.

              1. ChuckP,

                Inflation… Didn’t you get Powell’s memo? That’s just transitory. Pffft!

                We have a client who tells us of experiences like this related to their business activities in SE Asia: “The shipping industry is the latest supply/demand imbalance to grab headlines as the price for sending a 40-foot container by ship from Shanghai to Los Angeles currently resembles a chart of a hot meme stock. The price has soared 172% this year.”

                And please try to look past hard facts like this: The producer price index jumped by 0.7% last month, and skyrocketed by 8.3% through August, the biggest year-on-year advance since November 2010, after surging 7.8% in July.

                Transitory? SMDH…

                  1. The blurb was pulled from the first paragraph, here:

                    https://www.bls.gov/news.release/ppi.nr0.htm

                    They began calculating the YoY data in November 2010.

                    I’d suggest poking around on the BLS site if you want more info, but I gotta say, this chart shows a pretty substantial turn in production around 2010:

                    https://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=pet&s=mcrfpus2&f=m

                    The price of crude oil peaked in 2011, dropping the raw input costs as time marched on:
                    https://www.macrotrends.net/1369/crude-oil-price-history-chart

                    Just some random thoughts…

                    1. My point, which I wanted to see if you realized, is that the peak PPI in November 2010 was transitory. This infamously bad letter was published at that time (https://economics21.org/html/open-letter-ben-bernanke-287.html). Yet, you are arguing that today’s high PPI is clearly NOT transitory, but based on what, other than backward looking data caused by a variety of supply shocks?

                      It’s like this tweet from May, at the moment that Soybean prices were peaking (down 23% since then): https://twitter.com/biancoresearch/status/1392114202530177025

                      You can see that a number of commenters pointed out the fact that every spike was followed by a collapse in the past, so why would it be different this time? And the only answer amateur inflationistas ever give is that prices HAVE been rising, therefore they must continue to rise. But that’s not how it actually works.

                    2. Karma,
                      1. My post was a reply to ChuckP’s. I happen to agree with the sentiment he was digging at, taking into account other things that he has posted. Figured I’d do a little tongue-in-cheek to lighten the mood, but also highlight the trends we’re experiencing. Bluntly, I think Powell is a puppet and FOS. He’ll dance to whatever tune his masters play, despite the claim of being independent.
                      2. I realized that your question was bait, but being a good sport – figured I’d play along and try to answer such an open-ended question.
                      3. I see less and less need to place as much emphasis on past trends and statistics as I once did. 11 yrs ago seems like a lifetime ago – as so much has changed for the worse. I’ve never believed you can move forward by constantly looking backward.
                      4. There are many changes happening in this country that will forever change the entire landscape, so to speak – and for much of it, there seems to be no going back. Substantial wage increases, uncontrolled government debt, ‘entitlements’ bursting at the seams with millions more being added to the rolls, red tape and regulation out the whazoo, etc., for another 100 bullet points. When government gets bigger, it’s next task is to get even bigger and with that comes a slew of negative side affects – no matter the color of the party. The point with all of this is that it leads to higher and sustained price increases, i.e., shipping costs, groceries, autos, homes, insurance, healthcare, and on and on.
                      5. PPI is but one measure of how inflation is measured. PPI, CPI, PCE, etc. I wasn’t arguing anything nor do I base my views solely on the PPI when speaking to the subject of inflation.
                      6. Twitter feeds as a news source? Pass.

                      We’ll agree to disagree and leave it there because this will likely just devolve into word salad games and/or a political tit-for-tat. But know this: I would love to be wrong a year or two or ten from now. I really would – because that would mean that all of our dollars can be stretched and spread around with greater benefit. Just don’t see it happening anywhere on the horizon. I’ve seen ZERO evidence that any of this will be cheaper a year or two or 10 from now (+random examples of items/services+, shipping costs, groceries, autos, homes, insurance, healthcare).

                    3. A4I, you have a lot of conviction in your inflation thesis. Are you putting real money on this thesis? If so, how? Buying DBC or TIPS? Investing in shipping stocks to capture shipping inflation? Fossil fuel stocks? Let’s create an inflation basket and a “transitory” basket and see which does better over the next two years.

                    4. LI,
                      Surely, real money is always at work. As a sampling and not a complete list, our Rx includes the following:
                      1. Consider decreasing exposure to consumer discretionary/consumer goods related companies
                      2. Consider increasing exposure to commodities
                      3. Consider TIPS/TIPS-related investments
                      4. Consider increasing the usage of opportunistic options buying/selling & less dealing with plain common stocks
                      5. Consider limiting perpetual pfd purchases
                      6. Consider increasing short ‘term preferred’ purchases
                      7. Consider gaming the VXX/other volatility related items
                      8. The most important IMO, aggressively add to REIT and/or real property investments

                      etc… GLTA

  2. I suspect the number will give all the talking heads something to talk about and the rest of us something to worry about.
    IMO, a year / two years from now the wages will not come down, products will still be in smaller packages at the same elevated price. (1 pt. ice cream now 14 oz.) Powel is up for another nomination, he will not do anything.
    We are “transitioning” into stagflation. I wish the clowns would just say it.

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