The Producer Price Index (PPI) for final goods unexpectedly declined in July. The PPI fell 0.1% as did the core PPI which excludes food and energy. THe Econoday consensus expected a 0.1% gain.
Lack of inflation has been the issue this year but July’s producer price report raises new concerns, that is disinflation. Headline prices fell an unexpected 0.1 percent with the less food & energy reading also at minus 0.1 percent and the less food, energy & trade services no better than unchanged. Year-on-year rates are all down 1 tenth, to 1.9 percent overall with less food & energy at 1.8 percent and the third reading which also excludes services at 1.9 percent.
And services are the major concern in this report. Overall services fell 0.2 percent in July with the closely watched trade services down 0.5 percent and reflecting price weakness for chemicals and also machinery. Other readings include a 0.1 percent decline for total goods, a 3rd straight monthly decline for energy, down 0.3 percent, and no change for foods.
Prices this year, in part reflecting lack of wage traction, have been unusually weak and if tomorrow’s consumer price report proves no better than today’s wholesale price report, doubts over Federal Reserve intentions to further remove stimulus, including the initiation of balance sheet unwinding, will very likely build.
PPI Final Demand
PPI Goods vs Services
The above charts are from the BLS Producer Price Report.
Our Keynesian Econoday parrot is concerned that consumers may get better prices. The parrot is always happy when consumers and producers have to pay more to get less.
The fact of the matter is standards of living rise when people pay less to get more.
Mike “Mish” Shedlock
Maybe instead of reading and quoting econoday, Econoday should read and quote Mish.
“The Producer Price Index (PPI) for final goods unexpectedly declined in July.”
…
Yesterday’s wholesale report (June) revealed higher inventories and sales.
Sales may have been higher due to prices being higher … or, may have been driven (in part) by lower prices and chance to stock up. The inventory build suggests at some point prices will be cut to move product.
The price of oil just cannot get up off the canvas – even with a steadily weakening US Dollar.
This is “the tell” – that the global economy is in nowhere near as good a shape as the economic cheerleaders would have you believe.
Does this lower the odds of FED rate hike in December?
yes
http://www.cmegroup.com/trading/interest-rates/countdown-to-fomc.html?utm_source=cmegroup&utm_medium=friendly&utm_campaign=fedwatch&redirect=/fedwatch
Odds have been slowly sinking and dropped another 4% today
Hi, Mish! Love your blog. However, I wonder about your comments implying that deflation is good for consumers or the economy. I suspect most classically trained economists fear the cyclical nature of deflation, and would view this point as “obvious” and therefore not wish to debate you on it. For example: https://www.businesstopia.net/economics/macro/deflation discusses the issue of deflation. I agree with you that the Fed has created an asset bubble (an everything but gold bubble!) but the reason is they are trying to avert a deflationary collapse. They feel the alternative to a bubble, which is a deflationary depression, is a worse outcome and moved to prevent it with aggressive (possibly ill-advised) policy. The future historians may decide that Bernanke destroyed the American economy, but we are not in a depression right now, and we very likely would have been had he not instituted QE. Your thoughts?
Hi Bob
The problem is not falling prices. The problem is excessive debt leveraged to asset prices (Think mortgages, commercial real estate, supplies of copper, etc).
The Fed sponsors not only asset bubbles, but tons of borrowing when it suppresses interest rates. When bubbles pop, corporations default, and the loans on the books of banks sour because of the asset bubble crash. It is asset bubble deflation the Fed ought to fear.
By fighting something benign, falling prices in general, the Fed brings about what it really out to be fearing.
I will make a post out of your question and answer in greater detail
OK thanks!
“but we are not in a depression right now, and we very likely would have been had he not instituted QE.”
Really?
QE had a lot to do with our current asset bubbles … but little to do with avoiding a depression (have we? or, has it just been deferred a bit?).
The “avoiding” a depression was courtesy of Fedgov, not the Federal Reserve. Bailing out the GSEs, massive increase in USG outlays (99 weeks for UE, Cash 4 Clunkers, bailout of States, etc.) FASB 157 (going from mark to market to mark to model), not prosecuting anyone associated with primary dealers, conducting sham “stress” tests for TBTFs, etc.
It could also signal a recession in the making.and if it is global possibly a depression . Lower price are not always a good thing. We will have to wait and see before crowing.
Lower prices are only an indication that supply outstrips demand. I’ll leave “good” and “bad” to people who think they can infallibly make such a judgement.
The Fed typically – and wrongly – thinks lower prices means they have to goose demand. They’ve been goosing demand for 65 years and now we have two people living in 5-bedroom homes with a TV in every room. Apparently the next goal is to get these people to sell their 5-bedroom homes and buy two 3-bedroom homes so they can pretend they are downsizing while buying a vacation house they’ll use for 2 weeks a year.
First i don’t believe the PPI, it purposely understates true daily cost of living. How can anyone say a 1.9% PPI is deflationary? Think about this, If you have 100k sitting in a savings acount earning 0% or actually being debited because of negative interest rates in some countries, you will need 101.9 k to maintain the same purchasing power. Again the PPI doesn’t represent real life inflation. This is stealing your wealth. The PPI should be 0 or less. This is not deflation it just low inflation and your govt steals your money more slowly.
Deflation–it’s what’s for dinner…
How many times do people, especially central bankers, have to hear it-debt is deflationary! Greenspan recently said the bond market is in a huge bubble. If one looks at a 30 year chart, bonds do look very expensive. Yet it seems like to me that a much better case can be made that most stocks, especially the Dow and Nasdaq, are in a bubble compared to the bond market. The boys in Austin, the Hoisington group, keep kicking ass on the long side of the bond market year after year based on the deflation dynamic of record worldwide debt!
Yes, Lacy Hunt doing exceptionally well
The reported “deflation” seems to be entirely a result of seasonal adjustment. I’m not sure I buy it.
The unadjusted number was -0.1, as well.
Optimism for late 2017 and early 2018. Graph does have validity over recent past.
http://moneymovesmarkets.com/journal/2017/8/9/us-banks-turning-expansionary-supporting-economic-optimism.html
Optimism for late 2017 and early 2018. Graph does have validity over recent past.
http://moneymovesmarkets.com/journal/2017/8/9/us-banks-turning-expansionary-supporting-economic-optimism.html
Mish I ran into Lacy Hunt at the Deer Valley ski lodge in Utah about 15-20 years ago after seeing him on TV a bunch of times. Said where do I know u from he shook hands with me told me who he was.
Reblogged this on World4Justice : NOW! Lobby Forum..
Mish what do you think of the Fish money moves markets post?
Essentially nothing
Only have to wait a few months to see. Tightening and balance sheet reduction into narrow money expansion, could cancel each other out. Henderson (Janus) have made some pertinent observations in the past. Money does move markets, worth taking into consideration.
A big credit clearing is due but when so many talk about it I suspect it’s further off. Late 2018 – mid 2020 type time frame.