US producer prices actually fell 0.5% in July

Which sounds great at first. Especially, as it comes on the back of the previous day’s decline in inflation.

It is a welcome outcome, but the startling thing about this data release is that it includes a massive drop in gasoline prices to the tune of 16.7%. This factor single handedly delivered the fall in PPI. Food also helped, but across just about every other sector of the economy the underlying prices surge continues.

Inflation has not gone away. It has merely abated for the time being.

What worries me about this, is that Oil may well be bottoming at current levels and headed higher. I am seeing $112 again. Which would lead to a very fast resurgence of Producer Price inflation, and for the consumer too.

It is far too early to be suggesting the Federal Reserve will slow down. Another 75 point hike at the next FOMC remains a given. While a resurgence in global oil prices as supply concerns again begin to mount, could even see inflation again above 9%.

The Federal Reserve would then be hiking rates by 75 points for the next few meetings after that. The price shock to equity markets may still be of the nature of another coming wave not yet identified.

Despite the slight decline in the inflation number and a fall in producer prices, we remain in the midst of a rather problematic economic environment. There may be light at the end of the tunnel, but we cannot see it yet, and supplies of optimism are running low.

The view here, is to continue to be cautious with regard to your stock holdings.

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