Daily Archives: 14 October 2022

Continued Inflation Pressure

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The Producer Price Index rose 0.4% in September (against analysts’ expected rise of 0.2%), and it’s up 8.5% year-on-year.

This matters because the PPI reflects the prices—and price increases—that suppliers face for the components of goods that they must acquire in order to produce those goods. Those supplier prices are then passed up the supply chain to subsequent suppliers and on through to the final product that consumers buy.

That means that consumers can expect commensurate price increases—continued inflation—in the weeks and a few months into the future, a lag whose delay depends on the specific product being produced and sold/bought, but a lag whose outcome is unavoidable.

That’s not just a prediction with a high degree of confidence behind it, either. Much of that future consumer inflation is concrete because it’s built in.

The Bureau of Labor Statistics estimates that trillions of dollars in long-term contracts are pegged to versions of the PPI.

Bank of England Fails

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The Bank of England, in its panic over the British bond market repricing, is extending its intervention into that market. The purpose of the BOE’s intervention, though, is exposed by the beneficiaries of the move [emphasis added].

The central bank on Tuesday said it would add inflation-linked government bonds to its program of bond purchases after a fresh attempt on Monday to help pension funds failed to calm markets.

And [emphasis added]

The central bank first launched its bond purchases on September 28 in an effort to help pension funds that held large positions in derivative-based investments that were upended by the surge in UK government bond yields.

Clearly, the BOE is not in the business of maintaining a stable pound; it’s in the business of protecting special interests from the results of their foolishness—like “investing” pensioners’ and future pensioners’ money in risky vehicles like those derivatives.

The proper move would be for the BOE to stand aside and let the market do what it will—which is to say let the market investors, all of them buyers and sellers according to their own imperatives, do what they will according to their own, independently arrived at, imperatives. That will be painful during the (re)adjustment period, but the outcome will be what investors, with their pounds, say they want.

After all, a properly free and open market is self correcting; a government intervened-in market never can be. Aside from the fact that a centrally directed market cannot respond quickly enough, those interventions color those investors’ imperatives, driving them necessarily away from independent development. Such politically-created market distortions permanently block corrections from running to completion.