Soaring energy costs pushed U.S. producer prices up by twice as much as expected in July, government data showed on Wednesday, with core prices excluding food and energy also flashing a warning of future inflation. The Labor Department said the producer price index rose 1.0 percent last month. Prices for finished energy goods jumped 4.4 percent, the biggest rise since October 2004, while finished consumer food prices fell 0.3 percent. Excluding those volatile areas, so-called core producer prices climbed 0.4 percent.
Higher inflation is consistent with a strong economy. The latest Merrill Lynch Global Fund Managers Survey has found:
Fund managers continue to be increasingly upbeat about the global recovery -- not surprising given recent strong real economy news. The net balance of respondents expecting the global real economy to strengthen came in at +14%, compared to minus-34% just two months ago. The prospects for corporate profits have also picked up, although more managers still expect profits to deteriorate rather than improve.
According to the survey, energy is a favourite sector. Not surprising, with the high oil prices. Today's PPI data and yesterday's news show that much in the world economy now is being affected by oil.
As Barry Ritholtz puts it at The Big Picture:
[Y]ear over year S&P500 earnings for the quarter are up 12%, including the contributions of Energy sector... Without Energy, the SPX year-over-year quarterly earnings gains are a pathetic 4%. With Energy, they are robust -- but so, too, is inflation.
Oil prices did fall yesterday, but it remains to be seen whether this represents a peak in prices or just a temporary correction.