The U.S. Producer Price Index reported no signs of inflation in August. The U.S. PPI came in weaker than expected once again, with the headline flat and the core rate down 0.1%.

In the past 12 months, the PPI fell 1.5% while core prices are down 0.3%. BMO Nesbitt Burns reports that this is the biggest year-over-year decline on record.

“Due to sluggish demand, companies currently have very limited pricing power. In an attempt to stimulate sales, companies have been slashing prices. For instance, computer prices were again off sharply, recording a decline for the sixth consecutive month. Lower vehicle prices also added to the lower-than-expected figures as auto-makers continue with their aggressive incentive programs,” says BMO Nesbitt.

RBC Financial Group says, “The current gap between the potential output level of the U.S. economy and its current operating level is expected to keep capacity pressures at bay well into next year regardless of the expected improving pace of economic activity foreseen in the coming quarters. As such, inflation will remain a back burner issue for the Fed for some time, keeping real economic growth, financial market stability and geopolitical developments as front burner issues.”

“Today’s numbers reinforce the absence of inflation pressures in the U.S. economy,” concludes CIBC World Markets. “Ensuring that there is room for the Fed to ease if it desires, although we expect the Fed to remain on hold at its September 24 meeting, saving a cut for late in the fourth quarter.”

BMO Nesbitt says, “These results suggest that the Fed’s decision to worry more about economic weakness than inflation is fully warranted. In fact, we are verging on deflation here. In that light, the 0.4% increases in both core crude goods and core intermediate goods prices were welcome hints that deflation is not taking firm hold.”

http://www.bls.gov/news.release/ppi.nr0.htm