Gold prices jump as U.S. producer prices rise 1% in June, record annual rise of 7.3%


Kitco NEWS 14 July, 2021 - 07:36am 21 views

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Powell will deliver semiannual testimony to Congress starting today, speaking in front of the House Committee on Financial Services at noon Eastern time. He will speak in front of the Senate banking committee on Thursday. Barron'sPowell Repeats View of Transitory Inflation, but Sharpens Focus on Expectations

(Kitco News) - Gold prices are holding at session highs as the inflation threat in the U.S. continues to growth with producers feeling the heat.

Wednesday, the U.S. Labor Department said its Producer Price Index (PPI) rose 1% in June following May's 0.8%; the data was stronger than expected with economists' forecasting an increase of 0.6%.

For the year, producer prices rose 7.3% the largest advance since 12-month data were first calculated in November 2010.

The report said that core producer prices rose also rose 1% last month, up from May's increase of 0.7%. Economists were expecting to see a 0.5% rise in wholesale inflation.

Gold prices were holding strong gains ahead of the latest inflation report and have added to those gains in initial reaction. August gold futures last traded at $1,829.20 an ounce, up 1% on the day.

Economists pay close attention to producer prices as it is a leading indicator for consumer prices. Traditionally, companies pass on higher costs to their customers.

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Inflation just jumped the most in years, yet markets are largely ignoring it. Here's why

CNBC 14 July, 2021 - 01:04pm

Consumer prices just posted their largest one-month jump in nearly 13 years, a fact that might tempt some to conclude that a white-hot U.S. economy is on the brink of runaway inflation.

But a spike in the June 2021 consumer price index reading may, in fact, be little cause for alarm.

That's because a significant reason for the overall prices increase is thanks to a dizzying rise in one isolated area of the economy: used car prices.

"The headline CPI numbers have shock value, for sure; however, once you realize that a third of the increase is used car prices, the transitory picture becomes more clear," wrote Jamie Cox, managing partner at Harris Financial Group. "Inflation is rising, but things are well behaved and have not changed materially."

Cox's comments came just minutes after the Labor Department published its June 2021 CPI report, which showed that prices paid by consumers increased 5.4% from a year ago, the largest jump since August 2008. Core CPI, which strips out volatile food and energy components, rose 4.5%, the sharpest move for that measure since September 1991.

Markets, which have in recent months grown wary of rising prices and whether they will cause the Federal Reserve to act, appeared to keep their cool over inflation on Tuesday.

The S&P 500 was essentially unchanged shortly after the open and the 10-year Treasury yield actually fell, not the reaction one would expect from such a hot inflation report.

The uptick in inflation in recent months is thanks to a mismatch between a vast amount of pent-up demand and limited supply of goods and services that Covid-19 made unavailable for almost all of 2020. Thousands of Americans hoping to finally travel in 2021 have helped drive up the price of oil and gasoline, as well as airfares.

That desire for travel and road trips has also fueled a historic appetite for used automobiles.

This was the largest monthly increase ever reported for the used cars and trucks index, which was first published in January 1953.

Ian Lyngen, head of U.S. rates strategy at BMO Capital Markets, echoed Cox's assessment of the June inflation numbers. He noted that used car and truck prices climbed more than 10% month over month and about 45% over the last 12 months.

Those sorts of figures, while impressive, are more of a distorting outlier than reflective of a broader uptick in prices across all sectors, Lyngen noted.

June's reading makes "the last three months 10.0%, 7.3% and now 10.5%," he wrote. "Overall, a continuation of the pandemic-specific pockets of inflation -- although questions regarding the 'transitory' characterization are sure to emerge in the wake of yet another stronger-than-expected inflation print."

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Five years of price hikes show the scope of inflation's surge | TheHill

The Hill 14 July, 2021 - 01:04pm

First is the cost of construction. The American economy nearly fell into recession during the final year of the Obama administration, and housing is currently red hot. Still, a sheet of lumber is a sheet of lumber. Recent prices show the extent of the increase. In May 2016, lumber futures reached a high of $328. In May of this year, it reached a high of $1,670. While lumber futures have fallen significantly since then, as production and supply chains begin to catch up, they’re still more than double the 2016 value.

Lumber is a crucial element of the overall economy, but it often does not affect most Americans’ day-to-day lives. Transportation does, however. The cost of operating an automobile has grown dramatically in the past five years. In the middle of May 2016, the average price of gasoline was $2.22 per gallon. By the end of May of this year, it was over $3.00 per gallon; today, it’s up over a dime more. The nearly 35 percent surge in gas over the past five years increases not only the cost of bringing kids to sports practice, commuting to work, or going to family outings, but also the price of nearly every consumable product.

Gasoline is only one part of the average cost of transportation for the average American family. Even though 2016 set a record for the highest price of used cars, at $19,189, it has been eclipsed by 2021 levels. By May of this year, the values shot up to a new height of $26,500. This is a 38 percent rise, and marks the second-highest increase on record. The previous high point was set in 1975, during the intense pain of stagflation. With the summer months upon us, along with a massive wave of summer travel, these prices will only continue to balloon.

For the average American family, transportation, housing and food prices are the three largest impacts to their household budgets. Food prices are up 5 percent, the most significant increase in 13 years. Meanwhile, in May 2016, food prices fell by 0.2 percent.

Even prices that traditionally tend to decline or stay steady, such as technology, are on the increase. A combination of supply issues and tariffs led to the largest increase in computer prices in over a decade, at 2.5 percent. Specific brands raised their prices even more in recent months — HP PCs are up by 8 percent, and printers cost 20 percent more. Meanwhile, in 2016, electronics prices fell by more than 5 percent. The United States is experiencing a bizarre period where traditionally-inexpensive goods are rising in prices while raw materials increase wider prices across the board.

The recent price surges forecast that the worst is yet to come, should federal policy continue on its current path. Add the post-pandemic loose fiscal policy, plus the injection of trillions of new dollars from the Federal Reserve to the unemployment bonus scheme crushing crucial supply chains, and we have all of the makings of a medium- to long-term crisis.

Many economists are blaring a contradictory set of projections for the next year. Turn on CNBC or read the business pages of most publications, and there are predictions of both a hot economy and tame inflation. Heck, there are dozens of think-pieces downplaying the potential effects of inflation. These two cannot exist simultaneously. Either the pent-up demand of the pandemic will lead to hot economic growth (and further increased inflation) or the economy will slump because of federal policy, and bring down prices with it. For the time being, we will likely see the former, and then the latter, funded by trillions of dollars in borrowing, printing and providing “free” cash in a sugar rush of economic activity.

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