Thursday, January 15, 2009
The "headline" number for producer price inflation recorded a decline of 1.9% in December and a decline of 0.9% for the year 2008. That doesn't mean inflation is dead, though, since the decline was almost entirely due to falling energy prices, and energy prices appear to be stabilizing over the past month or so. The core measure of producer prices (stripping out food and energy) rose a substantial 4.3% last year. Inflation is far from dead, but go tell that to the Treasury bond market, where widespread expectations of years of deflation still prevail. The only economic justification for Treasury yields being as low as they are is that inflation will prove to be negative for at least the next several years.
Posted by Scott Grannis at 9:06 AM