Prices in decline
Pretty amazing to see the enormous slowdown in producer prices in Canada.
Raw materials prices have dropped far more than expected, down by a massive -18.4 per cent over the past year, helping overall PPI to decline to -6.3 per cent over the past year.
This is very interesting because there was an argument that construction costs would be 'stickier' than this.
Not so!
Germany's producer prices also fell twice as much as expected in May, dropping -1.7 per cent, taking the year-on-year growth down to around just 1 per cent.
This is important because the relationship between producer prices and consumer price inflation trends to be a strong one.
The US has also seen producer price inflation fall to 1 per cent, while in much of Europe it looks like the inflation story has almost run its course.
Interest rates have been higher for longer to tackle inflationary pressures, but the narrative shift will soon see the conversation move towards recessions risks...and lower interest rates.
Deflation next?
The past few years has been unprecedented in many respects, and I wouldn't be at all surprised to see inflation going into reverse next year as supply chain disruptions are resolved and as interest rate hikes bite.
