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Inflation or Deflation

NEW YORK -- The producer price index for June was as benign as expected, so, there's no reason to worry about inflation.

But the PPI - especially the details - also provided signs of a pronounced pickup in the industrial economy...

"That increase is a sign of a fairly strong industrial sector economic recovery by year-end," said Anirvan Banerji, research director at the Economic Cycle Research Institute.

In fact, ECRI compiles an index of industrial prices using prices taken from the Journal of Commerce's, which was up 19.1% at a smoothed annualized rate as of July 1, almost exactly reversing a 20.5% decline six months earlier. The run-up in industrial material prices has been broad-based and in some cases attributable to specific factors.

[T]his truly is a case of demand leading to price pressures, but it fits the description that ECRI's Banerji made. "This is one of the very rare indicators that works both to signal inflation and industrial activity."

Nevertheless, in the current circumstances, the rise in industrial prices is much more important as a sign of a developing worldwide industrial recovery, he said. "At the beginning of this year, the leading indicators of inflation were at 26-year lows, so we're just coming off those lows, but we're not really looking at an inflation threat," noted Banerji. [He} pointed out, "maybe there's more inflation than before, but deflation, which is the concern du jour, is not a likelihood. The message is that the U.S. does not have a deflationary economy like Japan."