The May Producer Price Index (PPI), released this morning, fell 0.6%, reflecting weak energy prices (-3.5%) in the month. Finished goods prices are up 3.5% over the past year, compared with 6.3% for intermediate goods, 6.1% for crude materials.
In the fine print you can see that it was all oil prices: crude fuel prices rose 16.1% over May, 2004 year ago levels, which drove finished energy goods prices up 10.2%. Finished goods less energy increased only 2.2% for the year.
Translation: The China/India drag on US prices and wages, not hot commodity markets, is the real story. Forget inflation (and while you are doing it, would someone please remind the Fed about this?)
Low inflation will keep interest rates low. Robust lending conditions will keep small companies growing. I am fully invested, with a bias toward small caps (IWM) and dividends (DVY).
JR
