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On a day when the investment community received data showing that retail sales had declined 0.1% in September, we also learned that producer (wholesale) prices for the same month were down modestly too. Specifically, the Department of Labor reported that the Producer Price Index for finished goods fell 0.1%.

A closer examination shows that the decrease in finished goods prices was led by the index for finished consumer foods, which fell 1.0%. It marked the largest decrease since a 1.0% drop this April. The decline in food prices more than offset a 0.5% increase in energy prices, which also is a tame reading for the historically volatile component. Meanwhile, the index for finished goods less these two aforementioned volatile components advanced a rather placid 0.1%. Overall, prices for finished goods rose 0.3% for the 12 months ended September, 2013, the lowest 12-month change since a 2.0% decline in October, 2009—when the economy was still battling the recession and its difficult aftermath.    

The latest report is both a good and bad snapshot of current economic conditions. On the negative side, the data suggest that economic growth in this country is proceeding at a mundane rate right now, which is not surprising given the recent data on employment and retail sales. In addition, the report may begin to stoke fears about deflation rearing its ugly head in the months to come. However, the retreat in prices also suggests that inflation is not a big issue for the central bank at this moment and is more evidence why Federal Reserve will probably continue its accommodative monetary policies. We will learn more about the lead bank’s thinking when it concludes its latest two-day monetary policy meeting tomorrow.

The non-inflationary environment also allows the Federal Reserve to keep interest rates at record lows, but the strategy may have to be revisited in future months if producer (wholesale) and consumer prices—data on the latter metric are due tomorrow morning—were to continue to fall, though we are not yet convinced that deflation is a threat to the U.S. economy right now. Overall, the Fed still seems intent on keeping its current accommodative monetary policies in place, with its main focus on making a significant dent in the nation’s stubbornly high unemployment rate, which currently sits at 7.2%. Our sense is that the low interest-rate environment may be in place until at least the early stages of 2015, if the lead bank’s intermediate-term goal is to reduce the unemployment rate to around 6.5%.

All in all, the latest wholesale pricing data should not force the Federal Reserve to alter the loose monetary policies currently in place. We expect the central bank to stay the course for now, but it will have to keep a closer eye on prices going forward, as the threat of deflation—as much as inflation—would not be a welcomed event for an economy that is clearly not firing on all cylinders.

At the time of this article's writing, the author did not have positions in any of the companies mentioned.