Producer prices in deflation! It gets dark for consumer prices

Recently, German wholesale prices became deflationary for the third month in a row.  This was the weakest figure in three years! Import prices, too, are now strongly in the deflationary range for the fourth month in a row! And this morning producer prices will be on the table, the third important leading indicator for consumer prices (inflation). According to the Federal Statistical Office, producer prices will fall by 0.1% in September compared to September 2018. As a result, they too will now slide into deflation! This is the first decline in three years.

What is to become of consumer prices if producer prices, import prices and wholesale prices all show declining prices as leading indicators? It will be gloomy. Madame Lagarde would have even more arguments for more easing of monetary policy at the ECB if inflation in Euroland continues to weaken? What is the reason for the current weakness in producer prices? As so often, it is energy. Energy prices for producers were 1.9% cheaper than a year earlier. Excluding energy, producer prices were 0.5% higher than in September 2018.

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