‘Greedflation’ is back as US corporate prices jump
SPY•The value-added output price deflator for non-financial corporations rose 4.3% year on year in the second quarter, more than double its roughly 2% pace in the previous two years. Societe Generale strategist Albert Edwards said companies are raising prices without cost pressures, potentially prompting the Federal Reserve to tighten more than markets expect.
1. Corporate prices rise
The value-added output price deflator for non-financial corporations rose 4.3% year on year in the second quarter, Labor Department data showed. The increase was more than double the roughly 2% pace of the previous two years.
2. Inflation and rate risks
Societe Generale strategist Albert Edwards said there were no cost pressures to justify the jump, as slower unit labor cost growth offset higher costs elsewhere, including oil. He said the gauge tracks and can lead core inflation, and that if the pickup spreads to other measures, the Federal Reserve would likely have to speed up its expected tightening cycle.
3. Oil and interest costs
Spot crude was trading more than $30 a barrel above the nearest futures contract, a record, and companies appeared to be passing that on to customers. Refining margins were also at all-time highs. Edwards said higher rates may have less effect than usual on the economy while companies' net interest payments remain low.
