Producer prices increased a scorching 11.2% for the year ending in March, according to a report Wednesday from the Bureau of Labor Statistics, the highest on record.
The inflation rate in Wednesday’s producer price index report was up 1.4 percentage points from the previous month and is the highest in the gauge’s 11-year history.
Wednesday’s news signals more inflationary pain to come for households. The producer price index gauges the wholesale prices of goods, which are eventually passed down to consumers.
The news came just a day after a report for the month of March found consumer prices increased by 8.5% — the fastest annual rate in more than four decades. The high rate of inflation has wounded President Joe Biden politically and undercut support for his spending proposals.
RECESSION RISK RISING AND ADDING TO INFLATION PROBLEMS
“The pipeline is literally chock full of inflation at the lower stages of production which means the consumer’s nightmare of steadily rising prices of everything they buy is not over yet,” said Fwdbonds’s chief economist Christopher Rupkey.
“What started as an inflation outbreak related to the pandemic and supply chain shortages has turned into a nightmarish cost-of-living crisis with no way out but for the Fed to engender a sharp cutback in consumer demand which is a polite way of saying economic downturn or recession,” he added.
In order to combat the higher prices, the Federal Reserve announced it would raise its interest rate target by a quarter of a percentage point, the first rate hike since 2018. Now, since inflation has ballooned far beyond expectations, the Fed might decide to do a hike of half a percentage point at its May meeting in order to fight the higher prices more aggressively.
The central bank undertook unprecedented measures to ease monetary policy after the pandemic began more than two years ago. Those easy-money measures included slashing its interest rate target to zero and buying up massive amounts of government bonds.
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Most investors now foresee a half-point hike in May, with the likelihood of the more aggressive rate hike occurring pegged at more than 86%, according to CME Group’s FedWatch tool, which calculates the probability using Fed fund futures contract prices.
