Question...
I don't understand what's going on here. How exactly do we go about reconciling large increases in PPI and import prices with the .1% decrease in core CPI? Are consumers simply unable to hold the burden of increased input prices? And if this is the case, why on earth are producers, specifically in the manufacturing sector, making large investments in new capital and spending on labor? (OK yes its temp labor for the most part but still.) Basically, why the ramp up in production without significant signs of returning demand? I'm not following.
I get the "inventory bounce" argument. I see the connection between "slack" in the broader economy leading to deflationary pressures. So what's with the input price increases? That's the part I don't understand. The only way prices on the producer side can be increasing, is if there is demand for such inputs. If there's demand for the inputs, producers must see consumer side demand out there somewhere. I guess I'm just not seeing it. I agree that the fed should probably be more concerned about deflation, especially considering the events we've seen in Japan, coupled with the fact that deflation can lead to the whole "debt-deflation" death spiral situation. But despite this, manufacturers are going all Jean Baptiste Say on me. I thought we were past this theory in like 1860, why is it still around? It's the old saying "if you build it, they will come," I'm just not sure from where they'll be coming considering the economic environment for the average consumer.
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