Prairie Fire Inflation: Price Hikes Hit 20 Year High for Middle American Manufacturers

1872: A train speeds across the prairie land of the American West, while behind it a fierce fire rages. Published by Currier & Ives. (Photo by MPI/Getty Images)
Photo by MPI/Getty Images)

Inflation in the manufacturing sector of the central part of the U.S. continued to accelerate in May, rising to the fastest pace on records going back 20 years and dragging down the rate of growth, data from a survey from the Federal Reserve Bank of Kansas City showed Thursday.

The Tenth District Manufacturing Survey’s index for prices paid for raw materials jumped to 86, an all-time high in data that began being collected in 2001. That is the second consecutive record-breaking month for the data set. Ninety percent of respondents said they paid more for materials in May than April, and 98 percent said they paid more than a year ago. Only two percent said they paid less than the month earlier and one percent paid less than a year earlier.

“We are getting daily price increases from vendors everywhere from 4 percent to 30 percent,” a manufacturer in the district said.

The prices received for finished products rose to a record high reading of 51, with 52 percent said they were paid more and just 2 percent less on a monthly basis. Compared with a year ago, 81 percent said they were paid more and just 8 percent said less.

Inflation expectations remain very high. Eighty-three percent say they expect prices to be even higher for material six months from now, versus 7 percent expecting lower prices. Sixty-eight percent said they expected to be paid more for their products, versus eight percent who expect their prices to fall.

“Pricing of raw materials is up more than 20% with no sign of slowing,” one business told the Kansas City Fed.

Many businesses say they are being hurt by rising prices and a lack of raw materials, and they do not expect the inflation or supply-chain problems to evaporate soon.

“We are turning away a large number of orders due to material availability,” one business said.

“We do not believe the supply chain conditions are going away any time soon. Problems are going to persist into 2022,” said another.

Around 84 percent said rising material prices and delivery time delays have negatively affected their businesses. When asked how long firms expected rising materials prices and lack of availability/delivery time to persist, 27 percent reported 3-6 months, 52 percent reported 6-12 months, and 17 percent indicated more than a year. Less than 5 percent of firms anticipated these issues would be resolved within the next 3 months.

“We are feverishly working to pass on increased prices to reflect rising material prices. Inflation is going to be a big factor this year and beyond,” one respondent said.

Over 84 percent of firms indicated hiring plans have been restrained because they “cannot find workers with required skills.”

“We are having a really difficult time hiring and keeping quality staff at any wage rate. Everywhere you see help wanted signs, the jobs are going unfilled, exacerbating price increases and shortages,” one manufacturer said.

The Kansas City Fed’s monthly survey covers the western third of Missouri, all of Kansas, Colorado, Nebraska, Oklahoma, and Wyoming, and the northern half of New Mexico.

There were signs of not just inflation but stagflation, with the pace of expansion in the manufacturing sector unexpectedly slowing. The composite index for manufacturing activity came in at 26 in May, down from the record-high 31 in April. Economists had expected a further expansion to 33.

The composite index is an average of the indexes for production, new orders, employment, supplier delivery times, and raw materials inventories.

 

New orders rose from a month earlier, while the production index fell. The volume of shipments fell, as did the employment index. All remained well into positive territory.

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