US Producer Prices Show Biggest Slide in 11 Months

Consumer good wholesale prices in the United States slipped a little in July. While the minuscule decline is hardly notable, it is the first decline in 11 months. More importantly, though, the shift in the metric provides more evidence that inflation remains at an all-time low.

Indeed, the United States Department of Labor said, this week, the producer price index fell only about 0.1 percent, but it is a reflection of the third straight month of energy declines. Analysts say it is also a flat reading for food, as it essentially offsets the 0.1 percent gain (in food) in June.

Now, core inflation—which does not include the very volatile costs of food and energy—also fell last month by the same amount. Over the course of the past year, however, wholesale prices have improved 1.9 percent with core prices rising about 1.8 percent. In fact, the only index that looks to have improved is healthcare—which rose 0.3 percent—after holding steady in June.

As you may well know, inflation has remained quite low throughout what was supposed to be a swell recovery period. Over the past five years, however, inflation has fallen consistently short of the Federal Reserve’s targets: an annual price gain of 2 percent, last year.

FTN Financial chief economist Chris Low notes that year-over-year producer price inflation hit its apex in April but year-over-year consumer price inflation peaked back in February. “Normally,” he explains, “it’s the other way around: wholesale price weakness leads to consumer price weakness. The unusual reversal suggests this year’s bout of disinflation is demand driven, reflecting consumers’ reticence to spend after last year’s sharp slowdown in wage and salary income and decline in savings.”

Last month, Federal Reserve chair Janet Yellen made sure to inform lawmakers of “some special factors” contributed, at least in part, to the low inflation readings. Of course, this is a lead-in to ideas that the Fed could hold off on raising rates again, at least until as early as December, after already increasing borrowing costs twice this year. In addition, the central US bank is expected to announce a new plan to begin reducing the $4.2 trillion Treasury bond and mortgage backed securities portfolio at next month’s policy meeting.

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