Hello, Deflation

Yes, inflation will eventually be a problem, when the economy or stagflation ignites and Bernanke waits too long to peel off the stimulus for fear of triggering a 1937-like relapse.

But now the problem is the opposite: Deflation.

Check out the Producer Price Index, courtesy of Asha Bangalore at Northern Trust:

On a year-to-year basis, the PPI was down 6.8% in July, the largest drop on record. The price index for intermediate goods decreased 15.1% and the crude goods prices dropped 44.8%, both of which
are also record 12-month declines.

The core PPI of finished goods, which excludes food and energy, edged down 0.1%, putting the
year-to-year gain at 2.6%. The highlights of price declines of core items includes lower prices for
cars and light trucks. The intermediate and crude goods prices fell 0.2% and 4.5%, respectively,
in July. The core intermediate and crude goods prices moved up in July. The main take away from
this report is that the threat of deflation at the wholesale level is valid. 

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