Producer prices fell by 2% in November, leaving the year over year change at a very modest 0.4%. But most of the decline in this measure of inflation was the result of collapsing oil prices. Leaving out food and energy prices, "core" PPI inflation was 0.1% for the month, and 4.2% for the past year.
As this chart shows, we've seen huge swings in inflation in recent years, all of which were driven by very volatile energy prices. Taking out energy, we see a consistent trend in core inflation, which has been slowly but steadily rising. Energy prices don't cause inflation, monetary policy does. Given their extreme volatility in recent years, it makes sense to focus on core inflation. And doing so tells us that inflation is still very much alive and well. And with the Fed being orders of magnitude more accommodative today than ever before, I think it's way too premature to pronounce inflation dead, as the bond market appears to be doing. Beware the very low yields on Treasuries, and be alert to the opportunities in TIPS.