Producer Prices Fell by 0.5% in June

But core inflation rose slightly, indicating price stability.

The producer price index (PPI) for finished goods continued to decline in June, falling another 0.5%, according to the Bureau of Labor Statistics. This marks the third-straight month of decline, and may strengthen fears of deflation. But like we saw in the past few months, food and energy prices drove this decline. Core PPI, which excludes those factors, actually rose slightly, by 0.1%. Let's look at the trends.

First, here's the overall PPI for finished goods:

ppi cht1 2010-06.bmp

You can see the downward trend pretty clearly. Most of the reason for June's decline, however, was driven by a big drop in food prices -- by 2.2%. Energy prices also declined, by 0.5%. These two factors made up for most of the fall, as core PPI was virtually flat. Here's its chart:

core ppi 2010-06.bmp

This shows pretty good stability for core PPI since late 2009. It remains very close to zero, meaning that inflation isn't a threat. But since core has failed to go negative recently, it also doesn't really indicate that deflation is a problem either. Over the past year, core inflation has been 1.1%.

Other producer price measures also declined in June. Intermediate good prices fell by 0.9%, and crude good prices dropped 2.4%. That intermediate good price decline is somewhat notable, as it's the first drop since last July. Crude good prices, however, tend to be very volatile, so its decline isn't necessarily reason for concern.

We'll know more about inflationary/deflationary pressures tomorrow when consumer price data is released.

Note: All statistics above are seasonally adjusted.