Consumers of goods — a group that includes all Americans — are paying more for everything right now. The Consumer Price Index (CPI) rose another 1.3% in June after climbing 1% in May. What gets less attention is the Producer Price Index (PPI), the costs of raw goods paid by manufacturers and processors that inherently affect the prices consumers see when making their shopping trips.
While both are rising, we shouldn’t expect them to accelerate at the same rate, described agricultural economist Andy Novakovic on the July 20 Hoard’s Dairyman DairyLivestream. It’s a matter of percentage and scale. Consider the differences in retail ($3 to $5 for a pound of cheese and wholesale ($2 for a pound of cheese) prices, Novakovic described. If one rises 10%, that same percentage increase will result in a different absolute change in the other category. The same is true with absolute costs not leading to the same percentage adjustment.
“We need to be a little bit careful about expecting to see the same numbers all the way along,” Novakovic responded to an audience question about comparing the two.
That is illustrated in the following graph showing that PPI has climbed much higher recently than CPI.
We can also see more variability in PPI compared to CPI, Novakovic pointed out. That makes sense because the smaller base of wholesale prices reflect a larger percentage change. The faster rise in costs likely means a slowdown of investment from producers of goods, added Tanner Ehmke, CoBank’s lead economist for dairy and specialty crops.
Novakovic also noted the lag when CPI comes down some after PPI does. “We can expect those same patterns going forward,” he added. For now, though, PPI is sitting strongly above the CPI affecting daily life.
To watch the recording of the July 20 DairyLivestream, go to the link above. The program recording is also available as an audio-only podcast on Spotify, Google Podcasts, Apple Podcasts, and downloadable from the Hoard’s Dairyman website.
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