It wasn't always this way. In fact, during the 1970s and early 1980s, it often seemed as though inflation
was out of control. And, to an extent, it was. However, in more recent years, especially over the past half decade, pricing has been totally under control. In fact, to a greater extent than not, it is the worry of deflation, or actually falling prices, that continues to be the bigger concern.
Such benign pricing has been the rule once again this month. Thus, a day after the Labor Department had noted that the Consumer Price Index had eased by 0.1% in October
, the same government agency has just issued data showing that the Producer Price Index
had dipped by 0.2% last month. That was the second month in succession that wholesale prices had fallen; in September, they were off by 0.1%.
Meanwhile, if we back out the volatile food and energy components to get the so-called core rate of the Producer Price Index, we find that such prices were up, but by a modest 0.2% last month. Affecting this core rate was a large increase in food costs. In all, such expenses rose by 0.8% in October. This was countered, to a degree, by a sharp 1.5% drop in energy costs, as oil and gas prices continued to retreat.
The core rate of the PPI, which is closely scrutinized by the Federal Reserve in formulating monetary policies, had ranged from having no monthly change to being up 0.2% every month this year. That should mollify the central bank as it approaches its mid-December FOMC meeting. The headline number, meantime, has ranged from a decline of as much as 0.7% in April, to a gain of that same magnitude last February.
Overall, this was a reasonable report, and certainly no cause for concern at the Federal Reserve. However, for those who retain some worries about deflation, the latest results need to be watched. We sense that the economy is still too healthy for that to be a long-term worry. But we do not preclude paying some attention to upcoming PPI and CPI reports. At the time of this article's writing, the author did not have positions in any of the companies mentioned.