Midday Macro: Inflation Passing Through?
Most economists have seen limited pass-through of surging food and energy prices to “core” inflation, but recent developments, including an announcement today from Dow Chemical, are indicating that trend may be changing.
Dow Chemical said it will raise prices of all its products by up to 20%, effective June 1, a move the company said is “essential” to its efforts to mitigate the effects of surging energy and related raw-material costs.
While Dow isn’t a major source for consumer products, its announcement is an indication of continued pressures in the production pipeline. “We are seeing a new sense of urgency at Dow, and its competitors, to pass along escalating and volatile costs in an environment of decelerating demand,” analysts at Bank of America wrote in a research note.
Last week, the producer price index registered a surprise reading on core inflation. The report’s core index, which excludes food and energy items, climbed by 0.4% last month, seasonally adjusted, compared with just a 0.2% rise for the headline index that includes all items.
“The pipeline pressure coming from the commodity price run-up may or may not eventually be translated into core consumer prices, but, either way, it will be a significant force,” wrote Stephen Stanley, chief economist at RBS Greenwich Capital, when the producer-price data were released. –Phil Izzo |
