The Federal Reserve wants inflation around 2.0% to 2.5%, but that remains a pipe dream. In fact, deflationary fears remain present as of now. It turns out that Retail Sales and Import & Export Prices had some deflationary pressure in their reports. Will that be confirmed in the Producer Price index?

Import and Export Prices were both negative in the month of June. Import prices fell by 0.1 percent in June, while export prices were down by some 0.2 percent. These numbers do not sound too bad on the headline, by the year over year numbers show a broad picture: import prices are down a sharp 10.0 percent, and export prices were down by some 5.7 percent.

Petroleum prices may have rebounded, but the ex-petroleum reading was down 0.2 percent in June. The Year over year, reading also showed ex-petroleum import prices being down by some 2.6 percent. Agricultural exports were also soft, particularly in prices received.

Retail sales for the month of June showed broad weakness. The reading was below expectations at -0.3 percent. The Bloomberg consensus was for a gain of 0.3%. Motor vehicles were part of the blame, and without that it would have been -0.1%. Still, Bloomberg had that component mostly right as the overall ex-autos was expected to be up by 0.6% in June. Now if you back out autos and gasoline, the core retail sales were still in the red at -0.2 percent.

Gas station sales did benefit from the rise in gasoline with a gain of 0.8% in June. That is after a 3.7 percent gain in May. Unfortunately, crude oil prices went south in July.

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The big question is whether the Producer Price Index will be soft on Wednesday morning as well. One issue to consider is that the Labor Department uses a final demand calculation now. Bloomberg is calling for a 0.3% headline PPI release and a 0.1% gain in ex-food and energy for the Core PPI reading.

Stay tuned.

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