The Producer Price Index surged last month, meaning higher prices could impact your pocketbook, according to a local economics expert.
The Producer Price Index is used to measure price changes before they reach consumers. Wholesale inflation saw a 0.9 percent rise in July. Tennessee Tech Dean of the College of Business, Dr. Tom Payne said the producer price index is usually an early indicator for consumer prices. Payne said consumer prices are already starting to rise.
“We did see a slight uptick there as well back on August 12,” Payne said.”That data came out on August 12. The producer prices came out on the 14, but on the CPI (Consumer Price Index) we saw a 2.7 (percent increase) overall and 3.1 (percent increase) if you excluded food and energy.”
Payne said multiple factors are contributing to the producer price index to surge, including increased production costs and tariffs. However, Payne said tariffs would not cause a long-term price increase.
“I think the jury is still out on how much that tariffs will really result in inflation, but there’s certainly some of that, that is going on in the economy today, along with the uncertainty, you know,” Payne said. “But these upticks in producer prices are kind of leading that expectation that we may see something on the consumer price side.”
Payne said the most recent personal consumption expenditures index shows an overall 2.6 percent inflation in the United States. Payne said inflation is elevated, but is not particularly high inflation as the Federal Reserve tries to have a two percent inflation rate. Payne said that though the inflation rate is not particularly high, consumers are still feeling it.
“Prices have obviously not come down,” Payne said. “So when we talk about inflation, we are talking about how much prices are going up, you know, from month to month, and so when we have that very high period of inflation and people are feeling that, you know, at the grocery store, even if if inflation itself comes down those prices are still high.”
Payne said seeing the producer price index increasing over the past month and a half is concerning, but not an overall signal for doom and gloom to come for the economy. Payne said the Federal Reserve is trying to avoid what is called stagflation, where an economy is slowing down while prices continue to rise.
“That is a dilemma,” Payne said. “One thing that you can do to fix one problem would have the opposite effect on the other issue that is raising or lowering interest rates, you know, has positive effects and negative effects on the economy. So we just have to balance that, and that’s the position that the Fed is in right now.”
Payne said many people believed that the Federal Reserve was going to lower interest rates in the future. However, Payne said the recent surge may jeopardize the idea of the Federal Reserve lowering interest rates anytime soon.
