I hate it when I see numbers reported without necessary context.
A Washington Post story today on the economy reports that producer prices are down 6.8 percent from last year, including a 0.9 percent drop in July:
Meanwhile, the Labor Department said the producer price index — which measures prices for finished goods — was down 0.9 percent in July compared with June, led by a drop in energy prices. Prices also fell over a wide array of industries and stages of production. Since last July, producer prices are down a record 6.8 percent. The decline suggests that inflation is unlikely to be a threat anytime soon, but it also reflects consumers’ ongoing skittishness.
That last sentence doesn’t make any sense because the Post doesn’t report the core PPI, ex gas and food—volatile components that put a lot of noise into the numbers. Look at that number and things don’t look nearly so bad. Core PPI is actually up 2.6 percent from a year ago, despite edging down 0.1 percent in July.
Now, food and energy prices clearly matter, but they should be reported alongside the core number. Think about last summer: Oil, for instance, was skyrocketing because of a huge bubble. It has since crashed. That doesn’t mean the entire economy is in deflation.
Not reporting the core number just flat-out misleads readers. My own initial impression helped along by an FT headline) was to wonder why we hadn’t seen more reporting on deflation lately in the face of such serious numbers.
Wall Street Journal economy reporter Kelly Evans, whom I know from when we worked next to each other at the paper, set me straight via Twitter quickly. Alas, most readers don’t know Wall Street Journal economy reporters.
All this said, I had already been thinking the issue of deflation had sort of fallen off the map in the last few months. Indeed it has, as you can see from this graphic, which shows how often the word has appeared in major news sources over the last year:
Evans tells me that’s probably about to change: “Expect deflation to return to center stage as worries about (markets and economic) weakness intensify” but that “Of course there are many who say even now INflation is being ignored, at future peril.”
To which I say: I’d hate to be Ben Bernanke right about now.