The U.S. Bureau of Labor Statistics (BLS) has reported that the Producer Price Index for final demand fell by 0.4% in April. The seasonally adjusted figure is compared to a 0.2% gain in March, but Bloomberg called for the March news to remain consistent in April with another a 0.2% gain. What this translates to, at least on the headline basis, is that the deflationary argument is back front and center. It is even more interesting to see the deflationary trend take place as oil prices actually have been recovering from their lows earlier this year.

On an unadjusted basis, the index for final demand fell by 1.3% for the 12 months period ending in April. As a reminder, Fed Chair Janet Yellen and the Federal Reserve are hoping for 2.0% to 2.5% inflation. Lower prices do not lend very much credence to rapid interest rate hikes.

Leading the broad-based decline, prices for final demand energy were down by 2.9%. The index for final demand foods was down by 0.9%, and for final demand goods on an ex-food and energy basis was down by 0.1%.

The BLS did say:

In April, more than 70 percent of the decrease in final demand prices can be attributed to a 0.7 percent decline in the index for final demand goods. Prices for final demand services edged down 0.1 percent. Within intermediate demand, prices for processed goods fell 1.1 percent, the index for unprocessed goods moved up 0.9 percent, and prices for services advanced 0.5 percent… Over 30 percent of the April decline in prices for final demand goods can be attributed to the index for gasoline, which decreased 4.7 percent. Prices for diesel fuel, jet fuel, utility natural gas, pork, and industrial chemicals also moved lower. In contrast, the index for pharmaceutical preparations advanced 0.5 percent. Prices for fresh and dry vegetables and for raw cotton also moved up.

Again, the lower prices are deflationary. Many investors are worried that the Federal Reserve is set to embark on a big interest rate hike cycle after years of zero rates. Mixed economic readings in general and lower prices do not exactly send the message that rates can be hiked up endlessly.

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