What a week for price data! We have been writing about the possibility of higher inflation for months now, most recently here. We have also highlighted the most likely assets to benefit from higher inflation like copper, oil and energy stocks. So far so good on that front. While inflation of some kind – be it transitory or more lasting in duration – has been a high probability scenario for awhile, we are finally starting to see it clearly in the economic stats. This week alone we were given price data from the New York Fed’s Empire State survey, economy-wide producer price data from the Bureau of Labor Stats, and price data from the Markit PMIs. All of those data points recorded large gains and handily beat market expectations.

For example, the Markit Services Input Price series went parabolic in February, recording the highest reading ever, by a long shot. The Output Price series also went up, but not as much as input prices. The difference between input prices and outprices implies margin contraction for services companies. We wouldn’t expect this level of margin compression to be sustained and thus expect output prices for services to rise handily in the months ahead, especially as covid vaccinations continue to chug along and reopening continues.

Producer prices rose significantly in January too. Core producer prices (prices ex food, energy, and trade), recorded a 2% year-over-year gain, which was fully double the “Street’s” estimates.