According to the Bureau of Labor Statistics (BLS), the Producer Price Index for Finished Goods declined 0.9 percent in July 2009, seasonally adjusted. The decrease followed advances of 1.8 percent in June and 0.2 percent in May.
The decline in producer prices was led by drops in the energy index (-2.4 percent) and in consumer foods (-1.5 percent). The index for goods other than foods and energy showed a slight decline of 0.1 percent. Year-over-year, the PPI has dropped 6.8 percent. Once again, energy and food have paced the decline, with the energy index falling 29.7 percent year-over-year and consumer foods down 4.2 percent over the same period. The index for goods other than foods and energy rose 2.6 percent from July 2008 to July 2009.
Commodities, especially oil, spiked from March to June on expectations of a robust worldwide economic recovery (click on Leading Indicators/Oil/Copper/Gold on the menu bar above for more detail). However, the reality of the situation is that demand is not that great, and has been artificially boosted by government spending programs. While continued government spending may put a floor on commodity prices, the lack of true private sector demand will also put a ceiling on commodity prices. Thus, inflation will not be a serious threat for some time – at least not until natural demand picks up. Deflation is still the enemy, but, again government stimulus programs will likely keep prices afloat (or at least out of free fall) until a real economic recovery gets underway. Even then, with most growth forecasts showing below-trend growth in major countries for the next couple of years, inflation should be held in check for the foreseeable future.
The full BLS PPI release may be viewed by clicking here.
Gregg D. Killoren
victoria1014
