Two Significant Datapoints Are Coming Up Today That Will Tell Us Something About The Inflation Debate

Here they are, via Calculated Risk:

• At 8:30 AM, the Producer Price Index for June from the BLS. The consensus is for a 0.3% increase in prices.

• At 9:15 AM, the Fed will release Industrial Production and Capacity Utilization for June. The consensus is for a 0.4% increase in Industrial Production, and for Capacity Utilization to increase to 79.2%.

One reason these are both interesting is that they may help shape the debate about inflation. The Producer Price Index (PPI) is itself an inflation measure, which attempts to capture the cost of raw goods that go into making things. And "Capacity Utilization" tells us how much of our current produciton infrastructure is in use or idle. The higher that number gets, the less slack there is in the system.

The question of whether inflationary pressures are building in the economy is one of the biggest, and most important questions of the moment. Right now, the Fed's view is that there isn't much inflation pressure, and that signs of rising prices are "noise." It's this view which allows it to indicate that rate hikes won't come for quite awhile yet. If the Fed is wrong, and there isn't much slack in the system, and prices for all kinds of things start to tick up, then the Fed could be forced to hike sooner.