This morning’s update on producer prices couldn’t be any clearer: disinflation (deflation?) is alive and well in the wholesale marketplace.
Producer prices fell 1.6% last month, the largest monthly decline in five years, and the second in a row, coming on the heels of September’s 1.3% stumble. As a result, wholesale prices for the past 12 months through October are off 1.5%–the first year-over-year decline in four years.
Once again, the descent of energy prices is the major catalyst for a lower producer price index. Energy-related goods tumbled 5.0% in October, following an 8.4% decline in September.
Alas, energy prices can’t fall indefinitely. In fact, there are signs that prices of crude oil and gasoline are stabilizing. For oil, the $60-a-barrel level appears to be a floor, at least for the moment. The December ’06 crude contract on the NYMEX was changing hands at around $59 this morning. That’s down from around $80 in July. Gasoline, meanwhile, seems intent on hovering in the $1.50-$1.60 range (as per the December ’06 contract), which is also down sharply from around $2 a gallon back in July.
But lest we think that price stability seems the path of least resistance for energy at the moment, one analyst crunches the numbers and contemplates an alternative future. “The distortion of the commodity futures curve by financial investment is the greatest challenge to the stability of the crude and natural gas markets in the last 10 years,” wrote Ben Dell, a member of the energy research team in the London office of Sanford Bernstein, in a research note to clients today.