Producer Price Index (PPI): Oh Crap!


The PPI release is very bad:

The Producer Price Index for finished goods increased 1.6 percent in February, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This rise followed advances of 0.8 percent in January and 0.9 percent in December, and marks the largest increase in finished goods prices since a 1.9-percent advance in June 2009. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 2.0 percent, and the crude goods index climbed 3.4 percent. On an unadjusted basis, prices for finished goods advanced 5.6 percent for the 12 months ended February 2011, the largest 12-month increase since a 5.9-percent rise in March 2010. (See table A.)

Ugh.  There’s no way to read this one as “good”.  Here’s the awful table:

Food and energy hits poor people disproportionately, and these are monthly numbers, not annualized ones.  At an annualized rate these numbers are comparable, if they continue to run this way, to that which caused the uprisings in Egypt!

Just as bad is the fact that we’re now seeing sustained and serious rises in both crude and intermediate goods and it is not transitory, carrying forward the pattern we’ve seen over the last six months or so.  Crude goods moved first, as I started to outline last summer, then intermediate.

The upcoming CPI release will be very interesting but thus far The Fed and Congress have, of course, been tone-deaf to the impact of their attempts to cover over the insolvencies that in fact exist in the economy.  The gambit, as I have repeatedly pointed out, is to continue to play this game in the hope that private consumption and production would recover.  By providing government “cheese” to the masses, private consumption can be “faked” – for a while.  But we’re now to the point that 30% of all paychecks are coming from government subsidy and there’s no sign that the private economy is “taking back” the lead from the public sector.

We must recognize the underlying facts – “excess capacity” in the economy is not a function of some transitory nonsense.  It is, rather, the result of massive ponzi-style financial game-playing and cannot be sustained.  The private sector cannot recover and return to health until and unless the government withdraws the artificial support and allows those firms that are insolvent to be recognized as insolvent, clearing the bad debts from the system.

The upward pressure from those who have and will scream about losing their “free stuff” will continue to rise to deafening levels.  But the response to irrefutable economic facts, which just are whether you like them or not, is what separates those who are leaders from those who will destroy our nation and its economy.

Today we have no leaders and no advocates for the truth.  We had better find some and do so soon, because the time for us to make elective choices in this regard and determine by some sort of representative process exactly how we’re going to face the reality that we cannot hand out 1/3rd of all earnings dollars from government transfer payments is coming to a close.

Following that time our realignment of priorities will be not a matter of choice but instead will be forced upon us.

That day is rapidly approaching and leadership from Washington, particularly from Congress and The Fed, is as of this point in time utterly absent.

The Market-Ticker