US PPI: Another sign inflation is heating up – Wells Fargo

US inflation numbers released on Friday showed higher-than-expected numbers, with the annual PPI hitting the highest level in years. Analysts at Wells Fargo point out the increase of 1.0% in March of the index is the latest sign that inflation is heating up. 

Key Quotes: 

“In the latest sign that inflation is heating up, prices for domestically produced goods and services jumped 1.0% in March. The increase sent the 12-month change in the PPI for final demand to 4.2% (NSA) from 2.8%, and is the first example of low base comparisons from this time last year generating substantial jumps in the year-ago rates of inflation.”

“With supply chain bottlenecks and the economy's broad re-opening fueling gains, the Fed is likely to continue to sit on its hands with policy as it awaits to see whether the recent pickup will have staying power beyond this year.”

“The strongest year-over-year increase in producer prices in nearly 10 years reflects more than just easy base comparisons from last spring, however.”

“We expect to see the year-over-year rates of inflation rise further over the course of this year, not just due to the easy base effects of last spring, but also due to the recent strengthening in demand at a time businesses are having difficulty getting their hands on materials and labor. However, we expect this too will have a transitory element to it. As bottlenecks ease and the initial flurry of services activity ebbs later this year, we expect to see a moderation in the monthly pace of price increases, which will generate a slowdown in the year-ago rate of inflation by mid-2022.”