Producer prices rise at fastest annual rate since 2011

Prices charged by producers rose 4.2 percent over the past 12 months, the fastest increase since 2011, as the recovery from the coronavirus pandemic drives a surge in demand, according to data released Friday by the Bureau of Labor Statistics.

The producer price index (PPI) rose at its fastest annual rate in a decade due largely to the massive and abrupt economic impact of the COVID-19 pandemic.

Prices fell sharply about a year ago as the pandemic derailed the global economy but have risen from those lows as companies prepare for a return to normal activity.

“Part of the sharp rise in the year-over-year PPI reading was caused by declines in price readings during the COVID shutdowns last spring. This will continue in April as the 12-month change in the PPI could jump as high as 6.0 percent,” said Ben Ayers, senior economist at Nationwide Insurance.

“These base effects will fade later this year and should push down year-over-year comparisons closer to normal by year-end.”

The PPI without prices for food, energy and trade services — which are typically more volatile — rose 3.1 percent over the past 12 months, the fastest rate since 2018.

Producer prices also jumped 1 percent in March, due primarily to a sharp increase in energy prices driven by the accelerating economy and brutal winter weather. The PPI minus food, energy and trade rose 0.6 percent in March.

Most economists expect inflation to keep increasing throughout 2021 as the U.S. rebounds from the depths of the coronavirus recession.

“The powerful cocktail of generous fiscal stimulus, warmer weather, and greater vaccination dissemination will spark the strongest inflation that the economy has seen in sometime this spring,” wrote Mahir Rasheed of Oxford Economics in an analysis.

Even so, Rasheed said that “it should settle down” and that “the Fed will look through the jump in price pressures” by keeping interest rates near zero percent.

Economists consider a moderate and relatively stable level of inflation to help spur economic growth by pushing prices and wages gradually higher. The Federal Reserve’s annual target for inflation is 2 percent as measured by the personal consumption expenditures price index minus food and energy.

Inflation has been below the Fed’s target range for decades, and Fed officials have expressed confidence that price increases will settle down before spiraling out of control.

“We’ve averaged less than 2 percent inflation for more than the last 25 years,” Fed Chairman Jerome Powell told a House panel in February.

“Inflation dynamics do change over time, but they don’t change on a dime, so we don’t really see how a burst of fiscal support or spending that doesn’t last for many years would actually change those inflation dynamics,” he said.

President Biden’s economic team has also expressed confidence that a brief surge in inflation would settle before the end of the year amid growing pressure from Republicans over the issue.

“It’s time for Biden to wake up from his liberal dream and realize that reckless spending has consequences, inflation is real and America’s debt crisis is growing. Inflation is rising and Americans deserve answers from Biden now,” said Sen. Rick Scott (R-Fla.) in a Friday statement.

As Biden and Democrats steered a $1.9 trillion stimulus bill through Congress, Republican lawmakers argued that the measure would spur rampant inflation with the U.S. economy set to boom this year anyway. Republicans have also argued, however, that the economy is too weak to handle the tax hikes proposed in Biden’s $2.5 trillion stimulus plan, which could theoretically cool off the economy if it started to overheat.