Producer Prices take a tumble

The Producer Price Index fell for the first time since March, declining 0.9% in July amid a 1.5% drop in food and a 2.4% decline in energy prices.

The core rate, which takes out the volatile food and energy categories, was also lower, testifying to the lack of pricing power in today's tough business environment. Economists had seen a 0.3% decline and a 0.1% increase, respectively.

Prices also eased in the pipeline, with both intermediate and crude goods losing ground. For now, there is little concern that inflation will heat up amid intense competition for consumers and excess capacity throughout the US and global economies.

Commodity prices have jumped recently, but productivity is rising. And wages, which are the biggest cost for most businesses, are stable. Therefore, it seems likely that the disinflationary trend we are witnessing will probably continue for most of 2009.

Year-over-year, wholesale inflation is down 6.4%, thanks mostly to falling oil prices. The core rate continues to recede and is up 2.6% y/y, compared to 3.4% in June.