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Inflation is beginning to break and even the government is starting to recognize that - but not completely. The Producer Price Index declined by the largest amount on record as oil prices collapsed. Food costs are also beginning to ease back. This was good news for consumers and indeed, most consumer goods wholesale prices were off. There were some notable exceptions, including furniture, appliances and tires.
Those increases are hard to comprehend given the extreme weakness in household spending. I suspect they will be down next month. As for capital goods, there were also some strange increases. For example, trucks, construction equipment (HUH? | Quote | Chart | News | PowerRating) and commercial furniture prices rose. That too makes absolutely no sense. While we did have an increase in capital goods costs, I don't expect that to continue.
The decline in wholesale costs should lead to lower consumer prices. The benefit of a major recession is that any worries about inflation tend to disappear and that is becoming the case. Over the next few months we should see a lot more data showing how inflation is coming down. That should ease the concerns of the inflation hawks at the Fed, though I doubt too many people are paying much attention to them right now. A year from now, if the economy is back up and running, they will probably have reason to be worried. But right now, forget it. The Fed needs to first help get the economy going and that doesn't mean being concerned about inflation. As for the markets, who knows what excuse investors will have for selling today or tomorrow or whenever? They really don't need one. Until economic conditions stop going down sharply and the financial markets stabilize, there is little reason to think a rally is in the cards.
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