WASHINGTON (AP) -- Wholesale inflation shot up in 2007 by the largest amount in 26 years even though falling gasoline costs allowed price pressures to moderate in December.Wholesale inflation, being 'in the pipeline' rather than 'on the store shelves,' is one of those numbers that is closer to reality than the CPI, not because it's higher but because it has been less massaged*. 6.3% is an incredible PPI number, even assuming it is anywhere close to the truth. At that rate, your standard of living will be halved in about 7 years, making those New Year's weight loss resolutions in 2015 much easier to keep.
The Labor Department reported that wholesale inflation was up 6.3 percent for all of 2007, reflecting a huge increase for the year in various types of energy costs ranging from gasoline to home heating oil.
The year ended on a more positive note, with wholesale prices falling by 0.1 percent in December. That reflected decreasing costs at the time for gasoline and other energy products. It was a significant slowdown after prices had soared by 3.2 percent in November, which had been the biggest one-month increase in 34 years.
But that's only the good news. You see, buried in the BLS numbers are a few other numbers that are not quite so tame. Like Finished Goods, up about 6.5% for 2005 and 2006 total, they were up 6.3% for 2007 alone, and a 13% rate for the past 3 months of 2007. In other words, finished goods inflation doubled in 2007, then doubled again since October. That's gotta make you feel good.
But a 13% 3-month inflation rate in finished goods is not the worst number, it just happened to be the top line of the chart. There are a few others that are far worse, like finished energy goods (51%), food and feed** (19.2%), materials for non-durable manufacturing (20.3%). No wonder El Presidente is begging his financiers for more oil; those costs find their way into everything***.
Remember when Michael Sivy said that $90 oil was no problem for either the bull market or the economy? That was awesome!
* It's as amazing as it is consistent how inflation numbers get smaller and smaller the longer the BLS 'measures' them. I need to get them to measure my weight for a while.
** It's a good thing food and energy come out of inflation once it reaches the CPI, I can tell you that.
*** But they'll have to fax it over, because the rising VLCC Spot Rate says the ships are already full. And if petroleum banker Matt Simmons (warning, big .PDF) is correct, it only gets better from here. He says the reason the Saudis are not producing more is not because they don't want to, but because they can't. And they will likely never produce at a higher rate than they are producing right now. Which means that this is as good as it gets.