US Producer Inflation Turns Negative Again in June

• PPI final demand for June -0.2% MoM vs 0.4% estimated
• PPI final demand for May MoM was 0.4%
• PPI excluding food and energy MoM -0.3% vs. +0.1% estimate
• PPI excluding food and energy, trade +0.3 vs. +0.1 estimate
• Final demand year on year -0.8% vs. -0.2% estimate
• Final demand excluding food and energy year on year plus 0.1% vs. +0.4% estimate
• Final demand excluding food, energy, trade -0.1% vs. -0.2% estimate

Lower pipeline inflation underscores the need for the Fed to remain on hold for a long time. Remember, before coronavirus the Fed was desperately trying to get inflation back up to the 2% target. The threat is that inflation will remain even lower over the foreseeable future.

• Base case scenario for GDP is a decline of 4.5 to 5.0% in 2020
• US has lots of excess capacity, expect disinflation
• Kaplan sees US growth in Q3 and Q4
• If we all wear a mask, the economy will grow faster
• In the future there will be a point when Fed will need to show restraint, but during current crisis it’s actions are appropriate