Producer Prices Decline 0.3%, Driven by Energy

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Prices for finished goods dipped on the producer level in May by 0.3%, according to the Bureau of Labor Statistics. But deflation alarmists shouldn't begin raising their voices just yet. The core producer price index for finished goods -- that which strips out food and energy -- actually increased by 0.2%, matching April's rise. That's because May's overall decline was driven by energy, which fell by 1.5%. This indicates that neither inflation nor deflation is currently a threat.

First, here's a historical chart on the Producer Price Index (PPI) for finished goods:

ppi 2010-05.PNG

That volatility is almost entirely due to food and energy. They tend to jump around and create misleading conclusions on price trends. Taking those factors out of the equation, you get the following chart for core PPI:

ppi  - core 2010-05.PNG

As you can see, this measure is a lot more stable. It indicates that producer prices are largely steady. They have averaged 0.1% for the past twelve months. Over the past year, core PPI has grown 1.3%, which is an acceptably low rate of inflation.

At this time the price level appears under control on the producer level. We'll know tomorrow if the same holds true for consumers when BLS releases that data for May.

Note: All numbers above are seasonally adjusted.

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Daniel Indiviglio was an associate editor at The Atlantic from 2009 through 2011. He is now the Washington, D.C.-based columnist for Reuters Breakingviews. He is also a 2011 Robert Novak Journalism Fellow through the Phillips Foundation. More

Indiviglio has also written for Forbes. Prior to becoming a journalist, he spent several years working as an investment banker and a consultant.
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