February 21, 2022

The headlines continue to be dominated by inflation as the Consumer Price Index (CPI), a common inflation gauge, hit another new high in December. It’s the highest level on record in 39 years.

Of course, this is getting everyone’s attention, including the Federal Reserve. The problem is, a lot of people think inflation could still rise.

Excluding food and energy, the “core CPI” was up 5.5% on the year (the biggest growth since February 1991). While the CPI gets the most attention, the producer price index (PPI) is actually more predictive of where prices are headed.

The CPI represents prices paid by consumers. But the PPI represents prices paid by manufacturers and others to make things. It is a forward indicator.

The PPI rose 0.2% in December, following a 1.0% jump in November. The PPI rose a whopping 9.7% over the 12 months ending in December, the largest one-year rise ever. That’s bad news for everyone because it means inflation can still go considerably higher.

Many different components make up the PPI. Some are used more frequently than others, but we’re basically talking about the cost of core, raw inputs to make things we use in our everyday daily lives. The prices of these materials are skyrocketing.

Plus, payroll company Paychex reported last week that its hundreds of thousands of customers are now paying an average hourly wage of $30. That is 4.27% more than any previously reported level.

This persistent high inflation has been everywhere. While wages are up, prices are up more. And while we may think it has peaked, the latest data says we may not have seen the high yet.