Nate's Deflationary Warning and the PPI

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Farmer Brown's picture
Farmer Brown
Status: Martenson Brigade Member (Offline)
Joined: Nov 23 2008
Posts: 1503
Nate's Deflationary Warning and the PPI

Last week, Nate made a pretty darn good case for deflation, in "Buckle the Heck Up!"

In that piece, he advised readers to look for the PPI numbers to be released this week.  Well, here they are, and they fall right in line with everything else he posted last week:

             Producer Price Indexes - July 2009

The Producer Price Index for Finished Goods declined 0.9 percent in July, seasonally
adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today.  This
decrease followed advances of 1.8 percent in June and 0.2 percent in May.  At the earlier stages
of processing, prices received by manufacturers of intermediate goods moved down 0.2 percent
in July after rising 1.9 percent in the prior month, and the crude goods index fell 4.5 percent
following a 4.6-percent increase in June.  (See table A.)

The downturn in finished goods prices was broad based.  The index for energy goods fell
2.4 percent in July after climbing 6.6 percent a month earlier, prices for consumer foods
decreased 1.5 percent following a 1.1-percent advance in the previous month, and the index for
goods other than foods and energy edged down 0.1 percent compared with a 0.5-percent rise in


Time to check the auto-stop on that seatbelt...


JAG's picture
Status: Diamond Member (Offline)
Joined: Oct 26 2008
Posts: 2492
Re: Nate's Deflationary Warning and the PPI

Charts from Nate's post on PPI today:

Month over Month PPI

Year over Year PPI

and some commentary:


Notice how seemingly benign the month over month chart is? It’s trending down, but look at the effect on the year over year chart 


And, get a load of this… According to the BLS, “From July 2008 to July 2009, prices for finished goods fell 6.8 percent, the index for intermediate goods decreased 15.1 percent, and crude goods prices dropped 44.8 percent, all of which are record 12-month declines.”


Did you catch that? RECORD DECLINES. Yes, energy is a large reason for the decline, but those who exclude energy costs, a very important and underlying engine for the economy (and demand is way down), are simply deluding themselves if they try to eliminate it like the government and media does.


I believe these numbers do mean that we have entered a deflationary spiral. I need confirmation of that from Jim Shepherd’s model, but I should know more soon. I will also have the updated charts from the Fed soon and will post them when they are updated.


It’s important to know that a deflationary spiral does not necessarily mean that stocks are going to plunge immediately. It may take time for it to translate, but it most assuredly will. More later - this is a very big development, one that I’m sure the media will ignore and pretend is not happening.


Davos's picture
Status: Diamond Member (Offline)
Joined: Sep 17 2008
Posts: 3620
Re: Nate's Deflationary Warning and the PPI

Wow. Good call.

I myself am keeping my eye on the debt ball. It can't be paid off. It can't be serviced. Creating money, no matter where it goes or doesn't go will weaken the currency.

Take care

pinecarr's picture
Status: Diamond Member (Offline)
Joined: Apr 13 2008
Posts: 2259
Re: Nate's Deflationary Warning and the PPI

Farmer Brown and JAG, thanks for drawing attention to Nate's article warning of a deflationary spiral.  Those are some very nasty charts he includes!  I have been getting chills  over and over as I read things the last few days...  Nate's right; the disconnect between reality and the media hype that everything is fine is hitting a psychotic pitch.  The level of cognitive dissonance (not to mention the content of those articles!) is raising my concern about where things are heading, and how soon!

jerdog's picture
Status: Member (Offline)
Joined: Aug 25 2009
Posts: 2
Re: Nate's Deflationary Warning and the PPI

Farmer Brown,


What do you think about Jim Shepherd's "model" regarding deflation and "cricital mass"?  His timing really hasn't been that good.


Do you think he is legit?

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