Something for your Espresso: The latent inflation build-up
Good Morning from Europe.
We were admittedly off in our projections for the monthly PPI inflation in the US economy, but there is an obvious latent input cost inflation pressure building beneath the hood.
The BLS increased the seasonal adjustments in the energy/goods components and while I keep working under the assumption that they are normalizing this volatility in the PPI adjustments, they are clearly not.
The bottom-line is the following: If energy prices remain constant from here, we have some pretty decent latent catch up effects in energy in PPIs ahead in April/May.
This was probably also the reason why markets refused to take the PPIs as good news, as the core elements of the PPI basket remained hot.
Chart 1: The BLS is increasing volatility in seasonal adjustments (again)
The PPI inflation report looks soft on the surface, but is relatively hot when you look beneath the hood. The release valve of this latent inflation build-up is found in precious metals space.
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