Two Signs We've Reached Peak Inflation

Between yesterday’s Producer Price Index summary and this morning’s update on Import and Export Prices, the US economy received two very strong disinflationary signals.

Yesterday, the Bureau of Labor Statistics reported that the Producer Price Index declined 0.5% month-on-month in July, with the year-on-year rate of increase easing to “just” 9.8%.

The Producer Price Index for final demand fell 0.5 percent in July, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This decline followed advances of 1.0 percent in June and 0.8 percent in May. (See table A.) On an unadjusted basis, final demand prices moved up 9.8 percent for the 12 months ended in July.

Most notably, declines were seen across all product categories except food, which surged to 1% month-on-month and 15% year-on-year.

This morning we learned that both import and export prices declined significantly as well.

U.S. import prices decreased 1.4 percent in July, after advancing 0.3 percent in June, the U.S. Bureau of Labor Statistics reported today. Lower fuel and nonfuel prices in July contributed to the decline in U.S. import prices. The price index for U.S. exports fell 3.3 percent in July following a 0.7-percent advance the previous month.

While both indices still show high price inflation year-on-year, the decline in month-on-month inflation rates in producer prices, import prices, and export prices are reason to be cautiously optimistic that consumer price inflation itself has finally peaked in this country.

Whether these signal ameliorating disinflation or outright deflation leading to further economic contraction and collapse will be the questions to be answered throughout this coming month.