We've been keeping an eye on the possibility of inflation returning, and we've had some good news this week. Wholesale inflation, measured by the Producer Price Index as kept by the Bureau of Labor Statistics, dropped 0.9 percent in July. Over the past year, the PPI has now fallen 6.8 percent, the largest drop since the BLS began tracking the index.
Interestingly enough, prices have fallen more the further back you go on the production line. The PPI measures prices for finished goods, and as I said, it's fallen 6.8 percent in the last year. Meanwhile, what's known as intermediate goods have fallen 15.1 percent and the price of crude goods - raw commodities that have yet to be processed - has fallen 44 percent.
The federal government's massive deficit spending has led to increased inflation fears, so these reports are very welcome. Not only can inflation be a nasty shock to the paycheck, but a low inflation rate will allow the Federal Reserve to keep its Fed Funds rate low. That will be critical in funding the recovery.
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