A look at wholesale inflation

Led by a 2.9% drop in energy prices in February, the Producer Price Index fell 0.6%, the first drop since September.

Year-over-year, producer prices are up 4.4% amid the steep rise in energy prices over the past 12 months; however, if we remove energy, along with food, prices rose just 0.9% from one year ago (March's rise came in at 0.1%).

The Fed has an implied range for consumer prices of between 1-2%, so there are few pressures building in the pipeline at the present time.

We will probably see another rise in the headline rate when March's numbers are released, as oil prices have trended higher once again. But outside energy (and the price at the pump), there just isn't much inflation in the economy.

Aggregate demand remains constrained, which makes in difficult to push up prices, while wage increases (the biggest cost for most businesses) have been small, alleviating much of the need to boost prices. Moreover, recent outsized increases in productivity will support profit margins and cushion the need for any price hikes in the short term.

Consequently, there is little threat of a return to inflation at the current time, allowing the Fed to keep rates near zero in its attempt to boost economic activity and support the sagging labor market.