(Greenwich, 9/19/2006) U.S. producer prices rose 0.1% in August following increases in July and June of 0.1% and 0.5% respectively. The core rate—finished goods other than foods and energy–declined by 0.4% following July’s 0.3% drop. This is the largest drop since April 2003 and the first two-month decline since late 2002. The drop in core prices was led by a 2.6% drop in new car prices and a 3.4% decline in light motor trucks. Drug prices dropped 0.9% and alcoholic beverage prices decreased 0.9%. Energy prices saw the smallest increase since February, rising 0.3% after a 1.3% gain in July. While food prices rose 1.4% following a 0.3% decline in the previous month, consumer goods other than food and energy fell 0.5% and capital equipment prices fell 0.3%. Read the full report
This report will help Fed watchers to unclench their buttocks a little. Inflation is on the down slope now, as shown in falling metals and commodity prices. The long bond should stay right where it is, at 4.75% for the 10 year Treasury, for the rest of the year. We could even see a drop in short rates in the next several months.