Wednesday, April 23, 2014

2 Charts Showing Inflation Is Heating Up

Here are some charts I found interesting today. Let's start with Capacity Utilization.

Capacity utilization was 79.2% in March, which is a big increase from February.

Capacity utilization has been rising steadily since the economy bottomed in 2009. Over the past year, it has risen 120 basis points.

From 1972 to 2012, capacity utilization averaged 80.2%. It was highest in the early 1970s, peaking at around 89%. It bottomed at 66.9% in 2009.

This suggests there’s a lot of room for production to expand before we start feeling inflationary pressures. High capacity utilization levels in the 1970s were a big cause of inflation.

Speaking of inflation ...
After sliding for three years, commodity prices, measured by the Commodity Research Bureau Commodity Index, appear to have started to rebound [Figure 1]. Food prices are rising in part due to the extended effects of severe weather. And fuel prices have been rising — with gasoline prices at the pump jumping 45 cents over the past five months to a national average of $3.65 per gallon.

Other inflationary things to consider ...

  • The Consumer Price Index, the most commonly cited and used measure of inflation, averaged 1.4% over the past year, but rebounded from 1.1% in February to 1.5% in March.
  • The Producer Price Index, a measure of what companies are paying for inputs, increased 0.5% in March. It was up even more excluding food and energy (0.6%), accelerating 1.5% year over year.
  • Food prices are rising rather rapidly, jumping 1.1% in March. That was the largest increase since May of last year. Droughts in California and Brazil are lighting a fire under food costs. The top-10 fastest-rising food prices from January 2010 to March 2014 are: Bacon +53%, Ground Beef +35%, Oranges +35%, Coffee +31%, Peanut Butter +30%, Margarine +30%, Wine +25%, Turkey +24%, Chicken +22%, Grapefruit +22%

Mind you, overall inflation is still low. But it is starting to heat up.

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