http://www.ibtimes.com/producer-price-index-november-2014-cheaper-gas-prices-keep-inflation-low-1751242
Gas prices have been on the decline as of late and as of this past Thursday, crude oil prices in the U.S. are now below $60 a barrel "for the first time since July 2009."
Paul Dales, a senior economist at Capital Economics, said that the "Lower oil prices will drag down headline PPI inflation" for the next few months but economists at Capital Economics also believe that "the stronger labor market will mean that core PPI inflation will have risen above 2% in the second half of next year." What Dales is trying to say is that lower prices at the gas pump have lead to lower prices from producers (PPI - Producer Price Index) due to the lower cost of production. With gasoline prices continuing to fall, there is pressure on firms to lower their prices. As a result, inflation remained below the 2 percent target that the Fed has had in place for the 30th consecutive month.
The fact that they believe the core PPI inflation rate will be over 2% next year is important because core PPI excludes "volatile food and energy components of PPI", meaning crude oil is eliminated from consideration. The strong labor market "boosts wage growth" which is the driving force to the core PPI rising.
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