Chart, inflation : Producer Prices Index at +21,2 % in july

Bad news for the boiler room : the PPI exploded in july at +21,2 % compare to july 2007 (source Bureau of Trade and Economic Indices).

In june, it was +18,6 %.

Those figures are simply ugly.

Why is it bad ? Because the PPI is a precursor of the CPI (Consumer Price Index). Businesses face higher costs, so naturally they will increase their own prices.

High PPI will fuel the CPI for the coming months.

In China, the PPI reached +10 % in july (read here). In the Euro Zone, it was +8 % in june. In the UK, PPI rise “the most since at least 1986“, at +10,2 % in july.

And it could get uglier. The PPI growth could accelerate further in august due to base effect (the index was lower in august 2007 compare to july 2007)…

With the same value of july (170,1) that would make an increase of 24,3 % in august.

5 Responses to “Chart, inflation : Producer Prices Index at +21,2 % in july”


  1. 1 fall 12 August 2008 at 3:48 am

    Even with global economy stagnate/decline, US in recession, and Thailand fledging economy, the PPI is still increasing? There is something missing in the picture here.
    Are Thailand economy and production sector really that fuel dependent?

  2. 2 ThaiCrisis 12 August 2008 at 5:36 am

    Well, indeed, it looks like a paradox.

    But looking at the details… it can be explained.

    First, and beyond the common idea about “ugly speculators”, there are several demand shocks, for many raw materials.

    Second, prices are going down for some commodities, but… base effect… their prices are still very high compare to previous years !

    I mean look at oil. We went from 145 to 115 in a few weeks, and the good old feel good brigade is telling us that the crisis is over… But look at a chart, with a few years scale… and the result is totally different. At 115 USD per barrel, oil is still very expensive.

    Third… time lag effect. When the chinese agreed in june to pay 80 per cent more for iron ore (to make steel) than the previous year… it’s not to please the canadians or the australians… just massive demand forecasts… based on previous massive demand.

    read here :
    https://thaicrisis.wordpress.com/2008/06/25/inflation-you-think-its-over-think-twice/

    But let’s assume that steel use start to decline now… prices will take time to go down. It’s the same for plastic (derived from oil)… it takes time for the whole chain to adjust to a new price/costs situation.

    Last but not least…. scenario of stagflation can be valid. We have had some examples in the past (70s). So why not now ?

    In the 70s inflation was fueled by oil+wages… Today inflation seems to be fueled by a much broader range of raw materials and commodities… but the wages remain quiet (for the moment).

    So different inputs, but same result : stagflation.

  3. 3 fall 12 August 2008 at 1:08 pm

    So, it would seem across-the-board demand shock (oil) and shift (materiel) are the driving force of increase price.
    It would seem stagflation is the right word.

    I doubt this government can meddle with wages without causing price/wage spiral.

  4. 4 MSB 13 August 2008 at 9:36 am

    Yeah the boiler rooms are a bit worried on that one. But i would point out that China CPI actually fell June to July despite the rise in PPI so its not all gloom & boom!!

  5. 5 ThaiCrisis 13 August 2008 at 9:46 am

    ->MSB

    If there is an obvious correlation between PPI and CPI, let’s not forget that they don’t have the same timeline if I may say.

    PPI is upstream, and CPI downstream.

    I believe it doesn’t make sense to compare both on only 1 month timeframe.

    Some companies wait before increasing their own prices, some companies just can’t do it (competition too high), or are forbidden to do so (prices control policy, like in Thailand for instance).

    Last point : it’s dangerous to compare CPI from different countries… I wrote it many times… They all use different items and weights in their index’s composition…

    As for Thailand, inflationary tensions are confirmed with other surveys (business sentiment from BOT).
    With have the PPI. We have the expectations… Therefore, the result should not surprise us : more inflation ahead.

    “Businesses expect inflation to linger”

    http://www.bangkokpost.com/130808_Business/13Aug2008_biz39.php


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Thailand Crisis

Coup, Economic slowdown, Terror In the South... The situation is worsening in Thailand. Bumpy road like often before.

But this time, it's different.

The key to understand the present turmoil is the inevitable... succession of King Bhumibol.


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