PPI and import prices show inflation is going to fall further. Another reason for a 50 point cut

The Consumer Price Index (CPI) is often the item we look at when we want to talk about where "inflation" is in this country, and those numbers have leveled off in recent months, with no readings above 0.2% in any of the last 4 months, and the lowest 12-month increase (2.5%) in 3 1/2 years.

That certainly is important, but it's also not the only part of the inflation picture. There also is the costs and prices that businesses pay for their products, before consumers ever buy those items at stores and dealerships. And there was even good news on that side on Thursday.

The Producer Price Index for final demand increased 0.2 percent in August, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. Final demand prices were unchanged in July and rose 0.2 percent in June. (See table A.) On an unadjusted basis, the index for final demand advanced 1.7 percent for the 12 months ended in August.

The August rise in the index for final demand can be traced to a 0.4-percent increase in prices for final demand services. The index for final demand goods was unchanged.

Prices for final demand less foods, energy, and trade services advanced 0.3 percent in August, the same as in July. For the 12 months ended in August, the index for final demand less foods, energy, and trade services moved up 3.3 percent.

Not only was final demand PPI staying low (especially for goods), but further up the supply chain, costs are actually going down.

Also add in sizable increases in productivity, with a 2.5% annual rate of increase for the 2nd quarter of 2024, and year-over-year productivity increases of more than 2.4% for each of the last 4 quarters. So if anything, inflation will be diminishing further. And that there is room for both profit as well as wage growth that gives some of those productivity gains back to the workers that made it possible.

Then on Friday, we got even more indications that inflation will stay low in the coming months, as lower oil prices from overseas led to a general decline in import prices.

Nonfuel goods were negative on lower prices for industrial supplies, consumer goods, and food imports. Capital goods was the only category to see an advance. Prices for motor vehicles and parts were flat after rising 0.4% in July, but the annual pace remains elevated at 2.3%.

— Meagan Martin-Schoenberger (@MeaganScho) September 13, 2024

So there is nothing to cause inflation to gear back up in the coming months, and the real near-term threat is that higher debt costs are causing Americans unneeded financial strain.

It also means that if we had a proactive Federal Reserve that realizes that inflation will stay low and likely decline in the coming months, we will be cutting by 50 points this week. In addition, the weakening in manufacturing and other interest-rate sensitive sectors indicates a need for relief from interest rates that are more than twice the level of current inflation, and possibly triple what it will be in September and October.