September PPI — From Inflation to Deflation

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Stock Split ImageThe U.S. Department of Labor has release the wholesale inflation reading via the Producer Price Index (PPI) for the month of September. The headline reading was -0.1%, versus a Bloomberg consensus estimate for a gain of 0.1%. The core PPI reading, ex-food and energy, was flat at 0.0% in September, versus an expected gain of 0.1%.

Unfortunately, these are not adding to inflation in any meaningful way as the Federal Reserve may be hoping for. Is it a sad day when the market participants actually want higher prices?

Gasoline prices were down 2.6% for the largest drop in about a year and a half. Food prices were down 0.7% at the wholesale level. The PPI at the consumption level, a reading that is touted as most closely following consumer price trends, was down 0.2% in September.

If you go back over the course of a year, PPI was up a total of 1.6% from September of 2013, lower than the 1.8% annual figure from August and lower than the 1.7% figure from July. The Federal Reserve has a 2% inflation target, with an upper band of 2.5% or so.

A slowing China and Europe are continuing to weigh on growth and inflation alike. Some investors may start to wonder if the Federal Reserve will be able to begin raising interest rates as soon as they hoped for late in the first half of 2015.

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