Thursday, November 4, 2010
A sign of disinflation
The Labor department released its quarterly productivity report today which showed that the average cost of labor for all products fell 0.1 %. This shows that the economy is a long way off from inflation as some people are hoping and predicting,since wage increases are an early indicator of impending inflation. But according to this scenario, since labor costs have fallen slightly, the price of goods should go down a little (disinflation) instead of the crazy upwards wage spiral the FED and the recent bond investors are hoping for.
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This is interesting especially since so many companies are reporting that the prices of goods are on the rise. Kellogg announced a 6% rise and turkeys are expected to be 20% more expensive this thanksgiving. If labor prices are falling, I'm not sure its reached the raw goods market yet. Instead, I'm seeing prices at the supermarket rising.
ReplyDeleteThe report talks about the average prices of all products. It is possible that turkey and cereal might have become more expensive but on a nationwide scale for all products, prices have actually fallen. This was also alluded to by Mark Schweitzer of the Cleveland FED in the economic outlook conference where he mentioned that we are actually experiencing less than normal inflation right now, which he hoped would end soon.
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