Inflation Is Subdued, Very Much So in July PPI from Labor Department

Despite higher energy costs, inflation still seems to be in check. The U.S. Labor Department released on Wednesday morning the Producer Price Index (PPI) for the month of July. The headline PPI came in flat at 0.0% and the core rate (ex-food and energy) came in with a gain of only 0.1%. Bloomberg and Dow Jones were both calling for estimates with again of 0.3% on the headline PPI and a gain of 0.2% on the core PPI reading.

This is good news when you consider that energy prices have come so far off the early spring lows. It also implies that inflation at the consumer level will not be passed down immediately if further upticks are seen in producer pricing. There is generally a lag in consumer inflation, versus what wholesalers and producers see, because they generally are unable to immediately pass on those higher prices to Joe Public.

Despite energy costs being higher than earlier this year, there was actually a drop in the month-over-month price in gas and gasoline.

The good news for the stock market is that this does not pressure the Federal Reserve to rapidly scuttle or adjust its quantitative easing measures. The market is still bracing for a tapering of the bond buying soon, but this does not signal that any change has to be imminent. About all you really have to fear is that some inflation watchers and Fed officials might worry that inflation is actually too low, even if this is not exactly deflationary.

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