Comparing Inflation Using Producer Price Index (PPI)

The Bureau of Labor Statistics does a world-class job of compiling the producer price index (PPI) across multiple industries and product groups. I wanted to better understand inflation from one category - Fruit and Vegetable Canning. 

We know 2020 was a year like no other in world history. Demand slumped initially when the pandemic shut down the economy. But, the stimulus that was unleashed in the U.S. and across the world helped stimulate demand for products. The work-from-home trend added to the need for furniture and laptops. Comparing the producer price index between 2020 and 2021 may not accurately picture inflation. So, I have compared the change in the index between 2019 and 2021 for the fruit and vegetable canning industry. That shows a sharp increase in inflation (See Exhibit: Increase in Producer Price Index Between 2019 and 2021). The graph also shows the trend line and the equation. The slope for the change in PPI between 2019 and 2021 is 0.0037. The data used is for January to November for each year.   

Exhibit: Increase in Producer Price Index Between 2019 and 2021 (%)   

(Source: BLS, Author Calculations)

We compare this producer price index year-over-year change with change in PPI for the fruit and vegetable canning industry between 2007 and 2009 (See Exhibit: Increase in Producer Price Index Between 2007 and 2009 (%)). The year 2009 was when the world was coming out of the deep recession caused by the U.S. subprime mortgage crisis. Inflation for the fruit and vegetable canning category saw a year-over-year increase of 14% between 2007 and 2009. The slope was -0.0021 showing that the inflationary pressure tailed off by the end of the year in 2009. In 2021, the price index is still increasing.   

Exhibit: Increase in Producer Price Index Between 2007 and 2009 (%)  

(Source: BLS, Author Calculations)

In the first half of 2022, the stimulus-driven demand should be fading. That should lead to moderation in the growth of the producer price index.  

      

 

Does data prove that the "low" jobs additions in April '21 is due to extended unemployment benefits?

 The U.S. Chamber of Commerce tweeted that the extended unemployment benefits should be stopped given the "low" number of job additions during April 2021.

“The disappointing jobs report makes it clear that paying people not to work is dampening what should be a stronger jobs market."

See the full statement from our EVP @NeilBradleyDC on this morning's @BLS_gov jobs report: https://t.co/uE1557IKt3 pic.twitter.com/HIeDFwoZb5

— U.S. Chamber (@USChamber) May 7, 2021

There's lot of chatter that people are getting more in unemployment benefits and that's keeping them from taking a job. April saw addition of 266,000 jobs. In a normal economy, 266,000 jobs would be a very good report. There could be multiple reasons for why the jobs report came in well below the expectation of a 1 million jobs. 

• Many parents still have kids who are remote learning. So, they may not have the flexibility to take-up employment while they are caring for their kids.    
• Vaccines were only widely available in the middle of April. So, people who were waiting to get vaccinated before heading to work, can only now get fully vaccinated.  

The best response to US Chamber of Commerce was provided by Ben Zipperer:

Hard to single out unemployment benefits as "dampening" job growth in the lowest-wage industries when those same industries are the ones with the fastest job growth https://t.co/4OqlLBc7PW pic.twitter.com/EjXJI7aswl

— Ben Zipperer (@benzipperer) May 7, 2021