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Staff of Reuters 3 Minutes to Read (Reuters) – WASHINGTON (Reuters) – Producer prices in the United States grew more than predicted in June, implying that inflation would remain high while the economy recovers from the COVID-19 pandemic and solid demand continues to strain the supply chain. Lordstown Motors employees work on the Endurance, a pre-production all-electric pickup truck, at the Lordstown Assembly Plant in Lordstown, Ohio, on June 21, 2021. Rebecca Cook/Reuters According to the Labor Department, the producer price index for final demand grew 1.0 percent in June after climbing 0.8 percent in May. The PPI increased by 7.3 percent in the year to June. This was the largest year-over-year increase since November 2010, and it came after a 6.6 percent increase in May. Reuters polled economists, who predicted the PPI will rise 0.6 percent in June and 6.8% year over year. Inflation at the factory gate is fueled by higher commodity prices and higher labor costs due to a labor shortage. Due to insufficient stocks due to supply chain concerns, companies can simply pass on the higher costs to customers. Consumer prices rose at their fastest rate in 13 years in June, according to the government. Inflation has been driven primarily by sectors at the heart of the economy’s recovery, though there were hints in June that it was spreading to other areas. Later on Wednesday, Federal Reserve Chair Jerome Powell will deliver the semiannual Monetary Policy Report to the United States Congress, and financial markets will be focused on his assessment of the latest inflation figures. Powell has always believed that rising inflation is only temporary, as have most economists and the White House. The Federal Reserve noted in a report to Congress this week that once the “exceptional circumstances” surrounding the reopening fade away, “supply and demand should become better balanced, and inflation is largely projected to decline.” Most economists believe inflation has reached or is nearing its peak, observing that some prices of pandemic-affected services are approaching pre-pandemic levels. “Once prices return to pre-pandemic levels, the upside becomes more limited as consumers become price-sensitive again, as they were in normal times,” said Alexander Lin, a New York-based economist at Bank of America Securities. Last year, the Federal Reserve cut its benchmark overnight interest rate to near zero and began buying monthly bonds to inject money into the economy. Demand is stoked by the Federal Reserve’s ultra-easy monetary policy, COVID-19 immunizations, and roughly $6 trillion in government aid since the pandemic began in the United States in March 2020. The Fed has indicated that it would be willing to tolerate greater inflation for a period of time to compensate for years when inflation fell below its 2 percent objective, which is a flexible average. The core personal consumption expenditures price index, the Fed’s favored inflation measure, increased by 3.4 percent in May, the highest increase since April 1992. Lucia Mutikani contributed reporting, and Chizu Nomiyama edited the piece./nRead More

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