{"id":1968,"date":"2021-03-12T11:22:57","date_gmt":"2021-03-12T16:22:57","guid":{"rendered":"https:\/\/naroffeconomics.com\/?p=1968"},"modified":"2021-03-12T11:22:57","modified_gmt":"2021-03-12T16:22:57","slug":"february-producer-prices-and-mid-march-consumer-sentiment","status":"publish","type":"post","link":"https:\/\/naroffeconomics.com\/?p=1968","title":{"rendered":"February Producer Prices and Mid-March Consumer Sentiment"},"content":{"rendered":"\n

KEY DATA:<\/u><\/strong>  PPI: +0.5%; Goods: 1.4%; Services: 0.1%\/ Sentiment: +6.2 points; Current Conditions: +5.3 points; Expectations: +6.8 points<\/p>\n\n\n\n

IN A NUTSHELL:<\/u><\/strong> \u201cWith $2.8 trillion of government stimulus flooding the economy this year, growth is no longer the issue, inflation is.\u201d<\/em>WHAT IT MEANS:<\/strong> \u00a0The economy is coming back and the stimulus will insure that continues.\u00a0 So, what is happening with inflation?\u00a0 Well, it looks to be on the rise.\u00a0 The Producer Price Index surged in February, led by a jump in energy and food costs. Excluding those categories, wholesale goods costs increased moderately. <\/em><\/strong>\u00a0But you cannot dismiss those increases, as the improving economy is likely to sustain the gains.\u00a0 The index for finished consumer goods is rising sharply and that is one special category that needs to be watched carefully.\u00a0 On the other hand, services costs are not going up very quickly at all.<\/em><\/strong> \u00a0As I have noted frequently, a rise in producer costs doesn\u2019t necessarily lead to a rise in consumer prices.\u00a0 But if the economy does pick up steam, firms may try to pass those costs along.<\/p>\n\n\n\n

Households are really warming to the idea that they might be getting lots of money from the government.\u00a0 The University of Michigan\u2019s Consumer Sentiment Index jumped in the first half of March, with both current conditions and expectations up solidly.<\/em><\/strong>\u00a0 The expectations index is somewhat depressed, but after the signing of the latest stimulus bill, and with checks possibly going out as soon as this weekend, look for that measure start to surge.\u00a0 <\/p>\n\n\n\n

IMPLICATIONS:President Biden signed the \u201cGet us back to where we would have been without the pandemic\u201d stimulus bill this week and massive growth is getting baked-in-the-cake.<\/em><\/strong>\u00a0 Indeed, the latest Wall Street Journal and Blue Chip polls of economists (I am part of both) has the economy expanding between 5.75% and 6%.<\/em><\/strong> \u00a0If you put that into your spreadsheet and compare projected fourth quarter 2021 GDP with the level of GDP that would have occurred if the pandemic never happened and the economy grew at the same 2.2% rate it did in 2019, most of the negative economic effects of the virus could be largely wiped by year\u2019s end.Of course, there is no such thing as a free stimulus package, especially when it contains so many free lunches for households, businesses and governments, so we need to switch our focus from worrying about recovery and start looking at what this massive growth rate might mean for inflation and interest rates.<\/em><\/strong> Yes, inflation is going up<\/em><\/strong>.\u00a0 We see that in today\u2019s producer price measure and we will likely start seeing it in the consumer price reports.\u00a0 Given how fast the economy is likely to grow this year, demand should be strong enough to provide firms with a level of pricing power they haven\u2019t seen in quite a few years.\u00a0 And they will likely take advantage of that. <\/em><\/strong>\u00a0Expect inflation to exceed 2% by summer and keep going from there.\u00a0 With rising inflation comes increases in mid- to long-term rates.\u00a0 But the current levels are well below where they should be when the economy sheds the pandemic.\u00a0 Since that will likely be in the next year, the markets should be starting to price in more normal (i.e., higher) inflation and rates should be moving back toward long-term trend levels.As for the Fed, higher inflation is likely to be received with open arms. <\/em><\/strong>\u00a0The change in the Fed\u2019s guidance to average inflation of 2%, not 2%, means that given how long inflation has run below 2%, above 2% or even 3% inflation will be acceptable for an extended period.\u00a0 In addition, the stimulus runs out by the last quarter of this year, and the economy will have to start standing on its own.\u00a0 Growth could slow sharply in 2022 and the Fed doesn\u2019t want to be caught raising rates into a moderating economy.\u00a0 So, I still don\u2019t expect any action from the Fed before the end of 2022, even if inflation runs hot this year.<\/p>\n","protected":false},"excerpt":{"rendered":"

KEY DATA:  PPI: +0.5%; Goods: 1.4%; Services: 0.1%\/ Sentiment: +6.2 points; Current Conditions: +5.3 points; Expectations: +6.8 points IN A NUTSHELL: \u201cWith $2.8 trillion of government stimulus flooding the economy this year, growth is no longer the issue, inflation is.\u201dWHAT IT MEANS: \u00a0The economy is coming back and the stimulus will insure that continues.\u00a0 So, … Continue reading February Producer Prices and Mid-March Consumer Sentiment<\/span> →<\/span><\/a><\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[],"class_list":["post-1968","post","type-post","status-publish","format-standard","hentry","category-uncategorized"],"_links":{"self":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1968","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=1968"}],"version-history":[{"count":1,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1968\/revisions"}],"predecessor-version":[{"id":1969,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=\/wp\/v2\/posts\/1968\/revisions\/1969"}],"wp:attachment":[{"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=1968"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=1968"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/naroffeconomics.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=1968"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}