US Producer Prices fell a further 0.1% after falling 0.4% in the previous month and rising 1.0% the month before that.
While the recent declines are at first glance encouraging, there is only one factor at work and even that big fall saw prices maintained.
That one factor is of course fuel prices, which collapsed a whopping 12.7% for the month.
The overall price which includes this big shift lower in fuel prices came in a mere 0.1% lower. And this is a serious alarm bell. It means producer prices are extremely firm and still rising in most other aspects. Services prices were up 0.4%.
Why I suggest a ringing alarm bell is what would happen to overall prices if fuel prices were to stabilise and begin to move back up?
This is a very real possibility now after such a big sell-off of late in that sector.
The oil price has been pricing in a global recession, but even with flat global growth, the oil demand would remain quite strong relative to continued supply worries.
The market has been focussing on the demand side of late but has probably priced too big a fall in actual demand while forgetting supply can still be somewhat problematic.
While there may have been some relief in fuel prices, natural gas prices are again climbing. I have been warning for some time about how switching reserves and supply to Europe to help offset the loss from Russia, would maintain and even heighten already skyrocketing domestic natural gas prices in the USA.
This is happening and is likely to get worse.
Given the outlook for oil prices to be stabilising or moving higher, natural gas prices continuing to climb and the clear firm to rising nature of most other producer inputs, the outlook for producer price and therefore consumer price inflation is at grave risk.
We could yet see US inflation swing back to above 10%. Well surpassing the recent previous high.
The US Federal Reserve will only be piling on the interest rate pressure as a result of this week’s data.
Watch for a negative Retail Sales number, but this will do nothing to stop the great Fed freight train from running over an already badly weakened economy. And stock prices.
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
