Author: Keith Griffith for Dailymail.com and Wires

Published: August 12, 2021 at 12:26 EST | Updated: August 17, 2021 at 11:24 EST

In another disturbing signal of inflation, wholesale prices rose at the fastest rate on record in July, sparking concerns that more companies will have to pass higher costs to consumers. 

The producer price index of final demand, which tracks inflationary pressures before reaching consumers, rose 7.8% in the 12 months to July, the largest increase since the first annual data was calculated in November 2010.

The U.S. Department of Labor said on Thursday that on a monthly basis, the index rose 1% from June, marking a 1% increase for the second consecutive month.

The day before, the government stated that consumer prices in July rose by 5.4% year-on-year, the same rate as in June, and there was fierce debate about whether the spike in inflation would be temporary, as the Fed and the White House insisted. 

The producer price index for final demand rose by 7.8% in the 12 months ending in July, which tracks inflationary pressures before reaching consumers

In June, steel workers participated in steel rolling operations at Lehigh Heavy Forge. Prices of cold-rolled steel sheets and steel strips rose by 22.9% year-on-year in July, pushing up manufacturer costs

Many companies have begun to pass on high costs to consumers. Executives said on an investor conference call that the hamburger chain Shake Shack plans to increase prices by 3% to 3.5% in the last three months of this year.

Unilever, the maker of Dove soap and Ben Jerry ice cream, said it will raise some prices to offset the increase in raw material costs. 

Yum Brands, which owns KFC and Taco Bell, said at the end of last month that its franchisees have implemented "moderate" price increases.

Wholesale prices rose by 1% per month in July, exceeding the 0.6% expected by many economists.

This shows that soaring prices have increased all costs from air tickets and hotels to food and gasoline, pushing prices far above the 2% inflation target set by the Federal Reserve. 

Core inflation at the wholesale level, excluding volatile food and energy costs, also rose by 1% in July. The core price has increased by 6.2% in the past 12 months. 

In the 12 months ending in July, the index for processed goods tracking intermediate demand (or commodities used to produce consumer goods) soared 22.9%, the largest 12-month increase since February 1975. 

One-fifth of this was due to a 22.9% increase in the prices of cold-rolled steel sheets and strips. 

The annual increase in wholesale prices was mainly driven by commodities, but services drove the monthly increase at the level of June

Annual changes in wholesale energy prices (blue) and transportation (red) prices helped push up the overall index

Rubeela Farooqi, chief U.S. economist at High Frequency Economics, said: “Price indicators continue to be affected by epidemics, including strong demand and supply constraints.” 

"In the next few months, the impact of reopening should diminish, but the certainty of supply chaos is low, and this situation may intensify due to the spread of delta variables."

In July, wholesale prices rose by 1%, of which nearly three-quarters were caused by rising service costs, which rose by 1.1%. 

The profit margins of automobiles and auto parts have risen sharply, increasing by 11.2%. 

Due to the shortage of computer chips and the closure of car factories, the retail prices of new and used cars have been rising sharply in recent months.

Driven by a 2.6% increase in energy prices, commodity prices at the wholesale level rose 0.6%, which was the largest increase in energy since the 5% rise in March.

Food costs actually fell by 2.1%, which is the first drop in food prices since December last year.

Federal data released on Wednesday showed that in the 12 months ending in July, the consumer price index rose by 5.4%, the same as in June.

Although the numbers are shocking, some economists say they have reached a peak and predict that inflation will ease as production and supply chains stabilize from the pandemic disruption. 

Mahir Rasheed, an economist at the Oxford Economics Institute, said that we expect the July report to mark the peak of producer price inflation, as supply pressures will gradually ease in the coming months, and demand will change from the first half of the year. The rapid growth of China has slowed down. 

"However, the stubborn pandemic interruption will continue to hinder supplies until the end of the year," he added.

The recent pace of price increases has intensified the Fed’s debate about whether it needs to act faster to reduce special support for the pandemic-hit economy, including starting to reduce its monthly bond purchases by $120 billion.

Federal Reserve Chairman Jerome Powell has repeatedly stated that the current inflation burst may be temporary, but other officials are increasingly worried that price increases will continue. 

Fed Chairman Powell admitted last month that inflation has risen significantly and may continue to rise in the coming months, and then once again attributed the price increase to temporary factors such as supply chain disruption.  

The Fed believes that controlling inflation is good because it encourages spending and business investment rather than hoarding cash. 

But uncontrolled inflation can be dangerous, weakening consumers' spending power, and hitting low-income families and pensioners the most.

The U.S. Central Bank lowered its benchmark overnight interest rate to near zero last year and continued to inject large amounts of money into the economy through monthly bond purchases.    

At around 4 a.m. on Wednesday, the Senate approved Biden’s fiscal blueprint for his $3.5 trillion infrastructure construction wish list.

Mitch McConnell called the bill a "reckless tax and spending frenzy"

Inflation is also rapidly becoming a political burden for President Joe Biden. Republicans in Congress accused him of promoting a $1.9 trillion financial aid package last spring, which included stimulus checks for most families and federal supplementary unemployment assistance, thereby accelerating Inflation. 

With the support of Biden and Congressional Democrats, trillions of dollars in expenditures are expected to be approved by Congress in the coming weeks.

On Wednesday morning, Senate Democrats passed a $3.5 trillion bill framework, and angry Republicans accused them of letting Senator Bernie Sanders decide their policies.

Utah Republican Senator Mike Lee lashed out at Biden's separate US$1.2 trillion infrastructure bill, which passed the Senate with bipartisan support this week because it was an "inflation bomb" on the economy. 

"Inflation is already crushing the American working class. If the Democrats pass their $3.5 trillion reckless tax and spending plan, the situation will get worse," Senator Tom Cotton, Republican of Arkansas, responded on Twitter. of  

In particular, gas station prices have become a political burden for Biden. The White House on Wednesday called on OPEC+ oil-producing countries to take more measures to increase supply to ease the price surge.

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