NEW YORK – There’s more and worse inflation in the pipeline. Producer prices lead consumer prices, and the US producer price index jumped by 0.8% in May, an annualized rate of over 10%. The government’s measure of final demand inflation for producer prices was up 6.6% year-on-year.

Shown in the main chart are major components of the Producer Price Index. This doesn’t look like a blip. It looks like modern monetary theory hitting the wall at a hundred miles an hour.

This isn’t transitory inflation, but chronic inflation caused by massive infusions of demand combined with neglect of supply. The question now is: When does inflation turn into stagflation?

To the disappointment of the consensus forecasters (and the US stock market), US retail sales in May dropped by 1.3%. After inflation, that’s a 2% decline – big enough to suggest that inflation is eating into household spending power faster than the federal government can shovel money out of the helicopter.

The Atlanta Federal Reserve compiles an index of “sticky” consumer prices – that is, items whose prices change gradually. This measure is rising at a nearly 5% annual rate, vs. only 3% for US wages.

The headline CPI rose at an 8.7% annual rate in May. That’s a better gauge than the so-called “core” CPI (excluding food and energy) or the Atlanta Fed’s “sticky” index.

Oil, as we wrote yesterday, is a prime example of what’s wrong with US economic policy: All demand and no supply. Oil demand is recovering as airlines start flying again and workers start commuting to jobs again, but the Biden Administration’s hostility towards anything that contains carbon has crushed oil field investment, and US oil output has fallen sharply.

Higher gas and heating oil prices eat away at consumer budgets. That’s how inflation leads to recession. Inflation is a massive regressive tax on low- and middle-income households, as well as a wild card for investors who have to reckon with arbitrary distribution of rewards.

Real incomes fall and the real value of federal debt payments falls, too. Eventually the soufflé will collapse, whether or not the Federal Reserve admits that it has unleashed a toxic tide of inflation.