- Producer prices increase 0.7% in August
- The supply bottlenecks are making it harder for businesses to restock after running down inventories in the first half of the year.
“Supply chain bottlenecks have persisted longer and more intensely than most predicted at the beginning of this year, and widespread labor shortages are among the main input issues producers are dealing with,” said Will Compernolle, a senior economist at FHN Financial in New York. “This means consumer price inflation should remain elevated for a while.”
The producer price index for final demand rose 0.7% last month after two straight monthly increases of 1.0%, the Labor Department said. The gain was led by a 0.7% advance in services following a 1.1% jump in July.
A 1.5% increase in trade services, which measure changes in margins received by wholesalers and retailers, accounted for two-thirds of the broad rise in services. Goods prices jumped 1.0% after climbing 0.6% in July, with food rebounding 2.9%. Transportation and warehousing prices shot up 2.8%.
The latest global wave of COVID-19 infections, driven by the Delta variant of the coronavirus, has disrupted production at factories in Southeast Asia, key raw materials suppliers for manufacturers in the United States. Congestion at Chinese ports is also adding to the pressure on U.S. supply chains.
Though surveys from the Institute for Supply Management this month showed measures of prices paid by manufacturers and services industries fell significantly in August, they remained elevated. Factories and service providers still struggled to secure labor and raw materials, and faced logistics delays.
“Producers are struggling to replenish their stockpiles against surging demand,” said Matt Colyar, an economist at Moody’s Analytics in West Chester, Pennsylvania. With inventories tight, producers are easily passing on the higher costs to consumers. Federal Reserve Chair Jerome Powell has steadfastly maintained that high inflation is transitory.
High inflation and supply constraints, which tanked motor vehicle sales in August, have prompted economists to slash their third-quarter gross domestic product growth estimates to as low as a 3.5% annualized rate from as high as 8.25%.
There are, however, signs that inflation is likely nearing its peak. Excluding the volatile food, energy and trade services components, producer prices rose 0.3%, the smallest gain since last November. Other industries are on a downward trend.