So, all those fears about deflation that everyone was worried about in theory, they just might be starting to unfold, but this may be largely tied to falling oil and energy prices and slack overseas economies. The U.S. Department of Labor has now released its Consumer Price Index (CPI) and Producer Price Index (PPI) data for December.

The CPI released Friday morning showed that consumer prices had their lowest price change in over five years. Again, mostly due to oil. December’s prices were down by 0.4% on a seasonally adjusted basis. The core-CPI, which excludes food and energy, was effectively flat. Energy prices were down by 4.7%, but the price of gasoline was down a whopping 9.4%. Both headline and core readings on CPI were more or less in line with the expectations that had been set by The Wall Street Journal and Bloomberg.

Some good news is here, and that is that real deflation has not yet kicked in. The bad news is that oil prices have remained weak, and it may take several months for lower prices to be seen by consumers.

Thursday’s Labor Department report on Producer Prices (PPI) was down the most in three years. The headline PPI was down by 0.3% in December, but core PPI, which eliminates the volatile food and energy, was up by 0.3% in December. This newer PPI calculation for final demand still has economists and investors not as comfortable as the old PPI calculations.

True deflation is not yet here, at least not much of it. Still, we have noted how long-bond yields hit a record low and how the formal timeline of rate hikes has been pushed out if you measure fed funds futures pricing.

No one really knows what real deflation looks like, but the old saying is that “you will know it when you see it, and you probably won’t like it.”

Stay tuned.

ALSO READ: Small Business Optimism Posts 8-Year High in December

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