Producer Prices Unexpectedly Decline

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