U.S. producer prices were unchanged in December as falling passenger vehicle prices helped offset increases in the costs of food and energy.
Figures released Wednesday by the U.S. Labor Department show inflation at the wholesale level is practically nonexistent, with producer prices actually falling 0.3% when the volatile food and energy sectors are removed.
Compared to the same time a year earlier the Producer Price Index for December is just 1.2% higher, but when food and energy costs are eliminated, it's actually down 0.4%.
"Near zero inflation again delays any Fed move to end the cheap credit policy, but still leaves many markets in a deflationary trap -- volume is good but margins are very low, forcing cutbacks to restore margins that only reduce demand and margins further when other companies are also cutting," said Newport Communications Senior Economist Jim Haughey.
"The standard policy solution to this dilemma is to boost inflation in the economy to permit margin improvements without job cuts and postponed investments. The Fed believes that improved confidence and exports will provide enough stimulus to avoid having to engineer more inflation, but this is not yet certain."
Haughey cautions that in this near deflationary environment carriers should be careful not to misinterpret weak dollar sales data as weak freight volume.
"The recent weak retail sales at chain stores are heavily due to falling prices. Over the past year, wholesale prices fell more than 1% for apparel, nearly 2% for appliances and consumer electronics and 4.5% for cars and light trucks. The only large categories with higher prices were food, footwear and jewelry," he said.
Commodity prices have been rising quickly, according to Haughey, up 26.1% since last December, even up 12.4% excluding food and energy. However, he said that so far these higher costs have been offset by high labor productivity and, to a lesser extent, lower manufacturing and distribution margins.
"This is the jobless and profitless recovery. It still seems like a recession even thought gross domestic product is growing at a 3% pace," he said.
As for trucking specific data, Haughey said heavy truck and trailer prices both edged up 0.1% in December in line with the 2002 trend of about a 1% annual inflation rate. Freight rates dropped reversing the surprising pickup in the previous month. Both truckload and less-than-truckload rates are expected to rise at a 2-3% pace this year.
Figures released Wednesday by the U.S. Labor Department show inflation at the wholesale level is practically nonexistent, with producer prices actually falling 0.3% when the volatile food and energy sectors are removed.
Compared to the same time a year earlier the Producer Price Index for December is just 1.2% higher, but when food and energy costs are eliminated, it's actually down 0.4%.
"Near zero inflation again delays any Fed move to end the cheap credit policy, but still leaves many markets in a deflationary trap -- volume is good but margins are very low, forcing cutbacks to restore margins that only reduce demand and margins further when other companies are also cutting," said Newport Communications Senior Economist Jim Haughey.
"The standard policy solution to this dilemma is to boost inflation in the economy to permit margin improvements without job cuts and postponed investments. The Fed believes that improved confidence and exports will provide enough stimulus to avoid having to engineer more inflation, but this is not yet certain."
Haughey cautions that in this near deflationary environment carriers should be careful not to misinterpret weak dollar sales data as weak freight volume.
"The recent weak retail sales at chain stores are heavily due to falling prices. Over the past year, wholesale prices fell more than 1% for apparel, nearly 2% for appliances and consumer electronics and 4.5% for cars and light trucks. The only large categories with higher prices were food, footwear and jewelry," he said.
Commodity prices have been rising quickly, according to Haughey, up 26.1% since last December, even up 12.4% excluding food and energy. However, he said that so far these higher costs have been offset by high labor productivity and, to a lesser extent, lower manufacturing and distribution margins.
"This is the jobless and profitless recovery. It still seems like a recession even thought gross domestic product is growing at a 3% pace," he said.
As for trucking specific data, Haughey said heavy truck and trailer prices both edged up 0.1% in December in line with the 2002 trend of about a 1% annual inflation rate. Freight rates dropped reversing the surprising pickup in the previous month. Both truckload and less-than-truckload rates are expected to rise at a 2-3% pace this year.
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