Producer prices up

Just as there is the Consumer Price Index (CPI) to measure consumer-level inflation, there is a Producer Price Index (PPI) to measure manufacturer-level inflation. In August the Labor Department reported the PPI was up 1.7%.

This is practically the perfect number. Much of Wall Street fretted in the spring that the lack of money flows and spooked consumer spending would result in a terrifying deflation. Deflation is bad because if people get in the habit of expecting price declines for almost all goods and services then they have no reason to buy today, so they wait until tomorrow. Ouch! So a positive PPI of 1.7% continues to alleviate any lingering fears of deflation.

However, an increase of 1.7% is also a modest enough increase to not trigger inflation – the other fear of Wall Street’s Goldilocks-ian brigades. Ideally there is always slightly positive inflation to induce people and businesses to spend now. This is the situation we have at the moment.

Taken together with the positive retail sales figures there are strong signs that the economy is beginning to work through its recessionary distortions and perversions and return to health.

Jason