Producer Price Index Soars to Annual Rate of 8.4%; Government Says No Inflation

Government Says No InflationWhile the “official” numbers may not show it, inflation in the U.S. economy is a major problem, and it’s hurting any chance we may have of real economic growth.

The Bureau of Labor Statistics says inflation in the U.S. economy has caused prices to increase by only 12% since 2007—what $1.00 could buy in 2007 costs $1.12 today. (Source: Bureau of Labor Statistics web site, last accessed April 5, 2013.) As my readers know, I believe these inflation numbers are materially understated.

In February, the U.S. Producer Price Index (PPI), what many economists consider to be an early signal of where inflation might be headed, posted the highest month-over-month rate of change since October 2012. The PPI rose 0.7% in February from January. (Bureau of Labor Statistics, last accessed April 5, 2013.) Using February’s number as a base, the PPI is rising at an annual rate of 8.4%.

Corn futures at the beginning of 2007 were priced around $350.00 per lot. Now the same future costs $630.00 each—an increase of 80% in the last five years. As corn is an ingredient in a significant number of different foods, general food prices have also increased.


But despite the inflation we are experiencing, Americans’ wages aren’t rising. In the first quarter of 2007, the average hourly earnings of all private-sector employees in the U.S. economy was $20.70 per hour. In the first quarter of 2013, it increased to $23.80 an hour—a six-year increase of less than 15% (source: Federal Reserve Bank of St. Louis web site, last accessed April 5, 2013); not enough to keep up with inflation.

Adding more to the problem, the Federal Reserve is still issuing new money at the rate of $85.0 billion a month, while the U.S. government spends about $1.0 trillion a year more than what it takes in. The more paper money printed, the more the government goes into debt, the more long-term damage there is to the U.S. dollar and the buying power of the greenback.

Dear reader, with inflation increasing and real wages falling, you can see why it’s very difficult for the U.S. economy to get any traction. By looking at the optimism of stock advisors and rising key stock indices, one would think all is well with consumer confidence and consumer spending—but the reality is the exact opposite. Economic growth occurs when the standard of living improves; unfortunately, right now that standard is deteriorating in America.

Michael’s Personal Notes:

Mark my words: the eurozone’s economic problems are here to stay, and the economic slowdown in the common currency region will get worse as we move forward.

The Netherlands, the fifth-biggest nation in the eurozone, is the new victim. The country, once looked upon as one of the strongest in the eurozone, is experiencing a collapse in its real estate market.

The Dutch economy has the most debt amongst its eurozone peers—banks have 650 billion euros worth of mortgage loans on their books, while consumer debt has hit an alarming 250% of income. (Source: Spiegel, March 4, 2013.) To give you some idea of the magnitude of that consumer debt level, in Spain, the ratio of debt-to-income reached 125% in 2011, the year Spain started to really have financial problems.

The official unemployment rate in the Netherlands just hit 7.7%, and 755 companies in the country declared bankruptcy in February—the highest monthly number of bankruptcies since 1981! The CPB Netherlands Bureau for Economic Policy Analysis now expects a decline of 0.5% in the country’s gross domestic product (GDP) this year.

We already know Greece is in a state of depression, and the economic slowdown in Spain, Italy, and Portugal is accelerating.

France, the second-biggest economic hub in the eurozone, is facing a staggering unemployment rate above 10%.

Similarly, Germany, the largest economy in the eurozone, is experiencing an economic slowdown, as well. The Markit Eurozone Composite Purchasing Managers’ Index (PMI) reports Germany’s all-sector output fell in March for the 19th consecutive month and March saw the largest drop in orders in three months. (Source: Markit, April 4, 2013.)

As I have been writing in these pages for months, the economic difficulties facing the weaker eurozone countries will spread to the stronger countries in that region. The once-stable Netherlands is the first such casualty.

Regardless of the European Central Bank’s (ECB) recent statements to the contrary, the economic slowdown in the eurozone region will intensify. This means the eurozone’s economic problems will continue to send ripple effects into the global economy, eventually reaching U.S. shores.

Where the Market Stands; Where It’s Headed:

We’re dealing with a stock market propped up by artificially low interest rates and paper money printing at the rate of $85.0 billion a month. The market’s “time” is limited. From my analysis, indicators are pointing to a deteriorating stock market advance.

What He Said:

“When property prices start coming down in North America, it won’t be a pretty sight because consumers are too leveraged. When consumers have over-borrowed so much that they have no more room in their credit lines to borrow more, when institutions start to get tight on lending, demand for housing will decline and so will prices. It’s only a matter of logic, reality and time.” Michael Lombardi in Profit Confidential, June 23, 2005. Michael started warning about the crisis coming in the U.S. real estate market right at the peak of the boom, now widely believed to be 2005.