Producer Prices are Still Not Rising

Unfortunately, the US still appears to be flirting with deflation. The BLS released new PPI numbers this morning, showing no increase in prices (excluding food and energy):

The Bureau of Labor Statistics of the U.S. Department of Labor reported today that the seasonally adjusted Producer Price Index for Finished Goods gained 0.3 percent in September. This increase followed a 0.4-percent advance in August and a 0.1-percent rise in July. The index for finished goods other than foods and energy showed no change in September, compared with a 0.1-percent increase in the preceding month.

I’ve put the latest numbers of the Core PPI and CPI rates (i.e. excluding food and energy prices) into a chart, to provide some context.

We’ll get new CPI numbers next Friday… but judging from today’s PPI report, don’t look for much of an increase. Why does this matter? Deflation (which means an inflation rate of roughly zero percent or less), if it happens, would be a serious problem for the US. One problem with it is that it is very hard to get out of. Japan has been trying for the better part of a decade. There are other problems with deflation, too, which I won’t get into right now.

As the weeks go by, Fed Governor Ben Bernanke is looking more and more prescient. In a fairly well-publicized speech in early September he said that he expected productivity growth to remain high, but that this would increase the slack in the economy and thus drive inflation lower and lower – implying that there is some risk of eventual deflation. Let’s hope that prices pick up some time soon – but I wouldn’t hold my breath.