The headlines read that the PPI was down and, indeed, the PPI declined 0.6 percent in February, seasonally adjusted, according to the BLS. However, on an unadjusted basis, the PPI advanced 4.4 percent for the 12 months ended February 2010. This is the fourth consecutive month of a 12-month increase.
There is simply too much noise in any one month of data to take it too seriously, especially after BLS seasonal adjustments. Look at 12 month data, and that data is alarming. Over 12 months, almost all commodities are up in price except hayseed.
A 4.4% increase during a recession suggests that we are in a period of stagflation, i.e. rising prices and a declining economy. Proof again that the Phillips Curve's supposed trade off between inflation and unemployment is junk economics.
This also suggests that the Fed has little room to print when this weak economy shows any signs of further market panic. Any Fed money printing will translate rather quickly into serious gains in price inflation. I'm still short-term bearish on gold, but, at the first sign of Fed printing (M2 growth), my position will reverse.
For those who ask how prices are rising despite slow M2 growth, the answer comes in the form of a declining desire to hold cash. That part of the panic phase is over (for now) and the money is starting to come out of wallets.
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