Today’s BLS release of PPI data for April show a 12-month increase in producer prices of 5.1%, thanks largely to higher energy prices. That’s the fastest annual PPI inflation that we’ve seen in a long time. (The one-month change in prices was 0.7%.) But I’ve said before that I think it’s more useful to look at the core inflation rate, excluding food and fuel price changes. The core rate was up just 0.2% last month, which implies a rise of about 1.5% over the past year. The core rate tells us more about the inflation pressures that the economy is generating on its own. The story there is that the core rate is rising, but from a very low level.
However, at some point sharply higher energy prices do become relevant in and of themselves. They do reduce the purchasing power of consumers in a very real way, and they often do eventually filter into other price increases. I’ve said it before and I’ll say it again: if the price of oil doesn’t start falling sometime soon (it’s still holding firm at close to $41 per barrel), it’s going to start having some very real effects on the economy this summer.