Big banks fare well in this rocky economy

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**Kai Ryssdal** (1:05)
What's the over under on the number of times I'm going to say economic data this week? I'm going to set it at 15
From American Public Media, this is Marketplace.
In Los Angeles, I'm Kai Ryssdal. It is Monday today. This one is the 13th day of July. Good as always to have you along, everybody. You know, there is a certain rhythm to economic data. The monthly jobs report comes out, with exceptions only for holidays, on the first Friday of the month. Updates to gross domestic product come out like a metronome, more and more specific about economic growth each time. And as surely as day follows night, the consumer price index, which will be upon us tomorrow, is followed by the producer price index. Consumer prices are pretty straightforward, right? Prices for consumers. The PPI, though, is more complex. Inflation at the wholesale level, yes, but it measures prices that businesses are charging all buyers, businesses and consumers. And the thing is, as Marketplace's Justin Ho reports, now to get us going, what happens in the PPI doesn't always stay in the PPI.

**Justin Ho** (2:22)
Part of the reason why the consumer and producer price indexes have been moving up at different rates is because they measure different things.

**Menzi Chen** (2:29)
One of the big things is rent. That's a very big component of the CPI, and that's not showing up in the PPI.

**Justin Ho** (2:36)
Menzi Chen is an economics professor at the University of Wisconsin-Madison. Over the last few years, rent growth has been slowing down.

**Menzi Chen** (2:43)
What's happening there, which is not at all incorporated in PPI, can drive a wedge between the two series.

**Justin Ho** (2:49)
All that weight the consumer price index puts on rent also means CPI isn't as affected by the cost of fuel.

**Laura Veldkamp** (2:56)
Consumers spend a lot of their budget on housing, and housing doesn't respond so quickly to the price of fuel.

**Justin Ho** (3:02)
Laura Veldkamp is an economics professor at Columbia Business School. She says the producer price index is much more sensitive to energy costs, because fuel is such an important part of what producers do.

**Laura Veldkamp** (3:13)
Even if they're not buying fuel itself, maybe they bought apples or blueberries or shirts, but they had to be transported to the location where they'll be sold, and that transportation requires fuel.

**Justin Ho** (3:24)
That added pressure puts businesses in a tough spot, says Matthew Miskin with Manulife John Hancock Investments.

**Matthew Miskin** (3:30)
They either get lower profit margins, or they have to pass this on to consumers, and the question becomes, can consumers take on that higher price point?

**Justin Ho** (3:42)
That's why inflation at the producer level can eventually hit consumers, especially for groceries, toothpaste, and other consumer staples.

**Matthew Miskin** (3:50)
These are very low margin businesses, so they don't have that much wiggle room to not pass the price on.

**Justin Ho** (3:58)
But Miskin says businesses don't always have the pricing power to pass on rising costs.

**Matthew Miskin** (4:03)
They'll cut their variable costs to make sure that their margins are as intact as they can make them. And so variable costs often include labor.

**Justin Ho** (4:13)
In other words, a slower labor market, and that means less consumer spending. That's why it can be a bad sign when producer prices rise faster.
I'm Justin Ho from Marketplace.

**Kai Ryssdal** (4:24)
Besides all that inflation data, one other thing we're going to get this week, it's Wednesday if you'd like to mark your calendars, is the Fed's beige book, Economic Anecdata from the Fed's Regional Banks.
We're going to front run them a little bit though with some Anecdata of our own dispatches from three of our retail regulars on how they are dealing with the economy. Kristin Tullheimer Bingham is the co-owner of Dean Sweets in Portland, Maine.