OJ, the cyclical inflationary pressures were evident in the PPI's intermediate goods (annualized +9,6%) and raw materials (annualized +21,6% EXCLUDING energy).
with regards to overcapacity and the secular deflationary pressures, they are evident in China (outright deflation for 18 months now), Japan, and are now beginning to show up in LatAm, where the biggest exporter's currency (Brazil's real) has collapsed and Brazil is now exporting deflation to it's neighbors. the reason for the collapse in Asia was mainly overinvestment, resulting in overcapacity - none of this overcapacity has disappeared. even in the U.S., the overcapacity problem is evident - capacity utilization is remarkably low (a tad over 80%) in spite of record high consumer demand and the longest post war economic expansion on record. if you believe that higher wages will not feed through to prices, you implicitly already acknowledge the overcapacity problem.
however, with wages, intermediate goods and raw materials all on the rise, margins are getting squeezed - economy-wide(publicly and privately held companies) Q2 earnings were actually DOWN, as margins have already begun to contract. therefore it is only a question of time until corporations will try to pass the higher costs on...that's the argument for cyclical inflationary pressures.
re: core rate of PPI and CPI: with all due respect, these data look biased to me. as has been discussed on this thread previously, the methods the DoL employs to arrive at these data are questionable. hard-to-measure "quality improvements" have entered into the calculation as well as the substitution argument. seriously, what are you going to substitute gasoline with when it goes up in price?
regards,
hb |
