PPI And Sales: How Do You Spell Deflation?

 |  Includes: FXD, XRT
by: Karl Denninger

Well what do we have here?

The Producer Price Index for finished goods was unchanged in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Finished goods prices advanced 0.2 percent in July and declined 0.4 percent in June. At the earlier stages of processing, prices received by manufacturers of intermediate goods decreased 0.5 percent in August, and the crude goods index moved up 0.2 percent. On an unadjusted basis, prices for finished goods increased 6.5 percent for the 12 months ended August 2011, the smallest year-over-year advance since a 5.6-percent rise in March 2011. (See table A.)

Remember, inflation will decrease. So said Benny and the (ink) Jets.

Well, not really. Reversion to the mean is not, incidentally, deflation either.

While the monthly rate of change is (a bit) encouraging one month does not a trend make and I would not call a 6.5% 12 month run-rate "good". (Click charts to enlarge.)

I wouldn't call the crude and intermediate goods numbers "positive" either:

We'll see if the end of QE2 really was a reflection in this, if the economy going down the toilet is driving this, or if it's all food and energy (yes, "ex-food and energy" is what you want to watch, but the problem is that energy, for example, is in nearly everything, so the "ex" moniker is a bit misleading.)

Then of course you have retail sales:

The U.S. Census Bureau announced today that advance estimates of U.S. retail and food services sales for August, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $389.5 billion, virtually unchanged (±0.5%)* from the previous month and 7.2 percent (±0.7%) above August 2010. Total sales for the June through August 2011 period were up 7.9 percent (±0.7%) from the same period a year ago. The June to July 2011 percent change was revised from +0.5 percent (±0.5%)* to +0.3 percent (±0.2%).

In other words, basically flat. The trend, however, is more than a bit disturbing....

 by genesis

That's not a base-jump - yet - but it definitely looks like an intermediate ski hill. The question of course is whether a double-black diamond is just around the corner.

The internals do not disclose anything stunning - the expected seasonal bump is there for August (back to school) in the usual places, but there is one potential warning spot - food service and drinking places showed a material m/o/m decline (3.2%), as did food stores (1.7%). Gasoline was down too but so were prices, so that doesn't surprise, and the decline was modest.

Back-to-school shopping (any big shopping season) frequently comes with more sales to food and beverage retailers, as people eat out when shopping. This time they didn't, and the question becomes why - was it for lack of desire or lack of funds?