Producer Price Index fell 0.6 percent in SeptemberPosted: October 21, 2009
Today brought welcome news for those of us who worry about inflation. The U.S. Labor Department reported that the Producer Price Index (PPI) fell 0.6 percent in September. Core producer prices, which exclude food and energy costs, declined by 0.1 percent.
Here at Inflation Watch, we’ve reported on evidence of rising prices at the consumer level (see, e.g., our posts on health insurance, college tuition, used cars, new cars, tires, gasoline, air fares, pharmaceuticals, parking, utilities, and, housing). But at the wholesale level inflation apparently remains subdued. For the time being, anyway. With crude oil prices marching higher this month, it is doubtful that producer prices will continue to fall for long.
This observer cited today’s PPI report as evidence that the U.S. economy is experiencing massive, prolonged deflation. This analyst hints darkly that the U.S. government may soon start burning down farmer’s fields and shooting their livestock in order to prevent further deflation. Or something.
The response on Wall Street, by strong contrast, was calm. The iShares Barclays 20+ Year Treasury Bond Exchange Traded Fund (TLT) rose by just 0.5 percent on the day–a decent showing, but hardly evidence of a sea change in inflationary expectations.
Update (10/21/09 11:33 am eastern time): At this moment, TLT is trading down 0.9 percent today, erasing all of yesterday’s gain and then some. Clearly, yesterday’s PPI report did little to comfort bond traders’ worries about inflation.