Friday, September 10, 2004

See, I told you not to worry about inflation. Folks, the name of the game is deflation. Tell your friends.
U.S. producer prices dropped unexpectedly last month as energy price gains eased and the cost of food and vehicles fell, according to a government report on Friday that showed inflation pressures fading.

The producer price index, a gauge of prices received by farms, factories and refineries, fell 0.1 percent in August, the Labor Department said. The so-called core index, which excludes volatile food and energy prices, also dropped 0.1 percent -- the first decline since February.
This is the second time in three months that the PPI has fallen, overall -0.3% since May.

This is also the third month in a row that the PPI for food has fallen, doing so at all three stages of processing. Since May, food deflation at the producer level is remarkable: finished consumer foods, -2.4%; intermediate foods and feeds, -8.5%; and crude foodstuffs and feedstuffs, -12.5%. If we translate that into the Commerce Department's beloved annualized percentages, the plunge is incredible: respectively, -9.5%; -34.1%; and -49.8%!

As I've said before, once this deflationary push is felt at the retail level we'll see a retreat of the CPI as well back to the levels of late 2003.

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