Commentary
Many pundits were spinning the inflationary story when factory prices continued higher in March, and they were quick to point out how rising factory prices will trickle down to consumer prices in the months to come. High factory prices must certainly mean high consumer prices, yet the data does not show a lagging increase in consumer prices when factory prices rise. History shows that high factory prices are deflationary and tend to be recessionary.
At face value, it seems obvious that rising factory prices should directly transmit into higher consumer prices in the months to follow as goods leaving the factory floor are delivered to retailers. Yet, the relationship between producer prices and consumer prices is mediocre at best.
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