Another key inflation measure hit a record high

By Anneken Tappe, CNN Business

A key inflation measure climbed to a record high in 2021, as pandemic price hikes just aren’t going away.

The US producer price index, which tracks what America’s producers get paid for their goods and services on average over time, rose 9.7% last year, not adjusted for seasonal swings. It was the biggest calendar-year increase since the data series began in 2010, according to the Bureau of Labor Statistics.

It was a slightly smaller advance than economists had predicted, but an uptick from the 9.6% recorded over the 12 months ended in November.

Stripping out prices for food, energy and trade services, which measures the changes in margins received by wholesalers and retailers, the inflation index rose 6.9% last year, compared with a modest 1.3% increase in 2020.

In December alone, the PPI data followed a similar pattern as the consumer price index that came out Tuesday: Prices still rose in December, but at a much slower pace than in the previous months.

“It was not as bad as many feared. US producer price inflation rose 0.2% in December, which is the mildest increase since November 2020,” Jennifer Lee, senior economist at BMO, said in a note to clients. “And considering that the average monthly increase over the past 12 months was 0.8%, well, 0.2% is good news.”

What got more expensive?

More than half of the price increases for services came on the back of higher prices for trade services.

Prices in fuels and lubricants, as well as airline passenger services, food retail, machinery and vehicle wholesaling also increased.

Overall, the price index for goods actually fell in December, marking the first decline since April 2020 when the worst of the pandemic showed up in economic data. Energy and food prices fell in particular.

The PPI tracks prices for finished goods and services sold to end consumers, as well as the goods, services, and maintenance and repair construction sold to the businesses that make those finished products.

On the upside, prices for parts and maintenance fell in December. The index for processed goods posted its first decline since April 2020, while the index for unprocessed goods recorded its first decline following eight straight months increases.

That eases the burden of passing on higher costs to end consumers, at least for the moment. Meanwhile, intermediate demand for services got more expensive, rising 0.8%, the biggest advance since June.

Will inflation keep rising?

Inflation will probably keep rising, at least in the near term.

“Things are still very heated compared to a year ago,” Lee said.

Even though economists predict some slowing in price increases, it will take time for that to filter through to the 12-month inflation tallies.

“This sets the tone for what to expect from inflation in 2022: The prices that surged the most in 2021, like energy, food, and used cars, will increase much more slowly or even decline,” said PNC Senior Economist Bill Adams. “At the same time, inflation will broaden across other categories of prices — businesses that saw their costs of labor and materials increase in 2021 are going to pass those higher costs on in 2022 as end demand stays robust.”

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