Courtesy of Karl Denninger, The Market Ticker
The Producer Price Index for finished goods rose 0.8 percent in September, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Finished goods prices were unchanged in August and increased 0.2 percent in July. At the earlier stages of processing, prices received by manufacturers of intermediate goods moved up 0.6 percent in September, and the crude goods index advanced 2.8 percent. On an unadjusted basis, prices for finished goods climbed 6.9 percent for the 12 months ended September 2011. (See table A.)
Oops. 0.8?! That’s a roughly ten percent annualized rate of increase! That’s scary bad, although the ex-food-and-energy change was only 0.2 (still above "expectations").
The problem is the 12 month numbers on the crude and intermediate goods – there has been no break in the trend, and it’s extremely serious.
Now here’s the ugly. That "crude goods" number, if we assume the lower end (but not the bottom) of the range – 18% say – and extend it out three years – it’s 164% of today’s price.
Put another way the cost of everything at a crude level will approach a double. The "intermediate" level will, if sustained over three years, rise about 26%. The difference will either come out of your wallet in the form of higher prices or it will come out of the processors that convert crude to intermediate (and finished) goods in the form of margins.
Don’t look at these numbers and think they’re no big deal. They most-certainly are, and if you want proof of this, stick that growth rate into your favorite calculator and figure the compounded growth over three, five or ten years.
Sit down first.
