CPI and PPI Both Showing Deflation

This morning's CPI report showed that consumer prices declined by 0.4% versus their levels a year ago. It also confirmed the deflationary trends in yesterday's PPI report, which showed a 3.5% year/year decline in producer prices. Negative prints in the CPI or PPI are rare enough, but for both to be negative in the same month is even more unlikely. Since 1948, there have only been 20 other months out of 734 where both indices were negative on a year/year basis. The last time we saw this occur was back in July 1955. In the chart below, we show the historical average reading of the year/year PPI and CPI. As shown, the current level of -1.95% represents a 59-year low.

While statistics like these cause most people to consider inflation the least of our worries, things have a way of changing fast. As recently as seven months ago (August 2008), the average inflation gauge was rising at the fastest rate since December 1981.

click to enlarge

Comments

[whidbey:]

People like Cetin are the reason we can afford free speech only if we ignore the lame.

Deflation is likely to be the problem in the near term if we have continuing job losses, while inflation is almost assured in the long run with the spending levels we now have from the Obama administration. We must expect stocks to surge and fall, but in the long run new bulls do not (as a rule) start with unemployment at 8.5% and growing. Too soon to buy anything for investors, traders can play if they keep their stops tight. We test the old lows this year.

Apr 15 06:09 PM

[Francisco M...:]

Cetin, who cares if you disagree.

Apr 15 06:51 PM

[Fighting Yoda:]

It is deflation all the way, bad for consumers (debt goes higher) and bad for corporates (less profits).

Helicopter Ben has failed miserably to prevent deflation, despite his valiant albeit misguided attempts.

Markets can't rise in a deflationery environment - all asset prices, commodities spcefically have to go down.

Apr 15 09:45 PM

[Jasper M:]

Yoda, I must take one exception with you analysis: deflation is bad for UnPrepared consumers. Those who already loaded up on debt are certainly disadvantaged. But those who have delayed their consumption do quite well, as (as you observed) commodity prices drop.
My grandfather was one of the lucky majority who kept his job through the Depression (engineer at Bell), and his frozen pay went farther and farther.

Apr 15 11:36 PM

[jpeak:]

> Yoda, I must take one exception with you
> analysis: deflation is bad for UnPrepared consumers.

You're right. That means most Americans. And Helicopter Ben isn't finished yet. He will continue to monetize our debt and create "manageable" inflation to help destroy debt of such consumers. He has to and it is a desired outcome.

Does anyone believe he knows how to pull the right set of levers to steady the ship when the time comes??

Apr 16 07:51 AM

[John Lounsbury:]

One cautionary note:

Much of the year-over-year numbers are commodity and energy related. These will continue to provide downward CPI and PPI for another 6 months, but then will disappear and may reverse into higher inflation. That is why the core numbers (excluding food and energy), which are up, have more than their usual importance in interrpretting what is going on.

Apr 16 09:46 AM

[Allan Frain:]

Back to the article--

YoY PPI and CPI are hugely distorted measures because approximately 12 months ago was the peak of an overleveraged, debt-driven commodities bubble.

Just don't let this article fall into the hands of Helicopter Ben.

Apr 16 02:24 PM