The Producer Price Index for final demand rose 1.1 percent in May, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices advanced 1.1 percent in April and 0.7 percent in March. (See table A.) On an unadjusted basis, the index for final demand increased 6.5 percent for the 12 months ended in May, the largest 12-month rise since moving up 7.4 percent in November 2022.
This is not Iran.
It is the monetary expansion from deficit spending which Trump did exactly nothing to curtail and is now presenting severe cost-push pressure into the supply chain across the board.
I pointed this out as a serious problem in January before the first shots were fired and it has only gotten worse since.
On the final demand (closest to the consumer) side removing foods and energy the escalation was 0.8% on the month which, on a 12 month rolling basis is just over 10%. Again that's excluding food and energy.
What's far worse is unprocessed intermediate which again, less food and energy, is up 2.6% on the month and the 12 month total run rate is 22%! The monthly increase annualized is 36% and processed goods less foods and energy were up 1.8% on the month which once again annualized comes to 23.9%.
This demands an immediate rug pull on both liquidity and much higher rates along with an immediate cessation of deficit spending which, simply due to where the spending is coming from, has to mean kneecapping the medical schemes.
This has nothing to do with the shooting over Iran as this analysis explicitly excludes energy cost increases which are even worse.
This is entirely due to not "policy mistakes" but wild-eyed policy stupidity across the board and there is no way to "grow out of it" or otherwise mitigate the impact. It is in the pipeline and will come out the other end over the next 6 - 12 months -- and any attempt to mitigate it rather than meet it head on will make it worse.
A reply of the late 1970s is inbound.
May I remind you that all the corporations that wrote paper (bonds) at 2-3% will be forced to refinance them at three times that rate or more as exactly zero of them have socked back the capital to pay those bonds off as they mature, and that wave is already starting as Oracle already has just demonstrated. There is no way that the Fed or Government can do anything about it. I warned of this exact scenario a few years ago and now here it is.
