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Realistbear

German Producer Prices In Free Fall--lowest In 60 Years

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http://uk.biz.yahoo.com/19082009/325/germa...ecord-fall.html

Wednesday August 19, 12:24 PM

Reuters

German producer prices post record fall

BERLIN (Reuters) - German producer prices posted their biggest annual fall in 60 years in July due to a sharp decrease in energy costs, but economists said the downward trend was unlikely to last and played down fears of deflation.

The Federal Statistics Office said on Wednesday that prices fell by 7.8 percent from July 2008, the sharpest drop since the founding of the post-war Federal Republic in 1949.

Unlikely to last? Why is it unlikley to last? China's demand for industrial goods is falling off a cliff and world is about to slip back into recession as unemployment soars. Its only just begun matey.

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Unlikely to last? Why is it unlikley to last?

The answer is in the quote you made. It says the falls in producer prices were due to falls in energy prices. Energy prices have stopped falling. Producer prices will therefore stop falling.

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This time last year oil was $120+. It is currently $67. Once the drop that was seen last Autumn is reflected in these figures everybody will be screaming about inflation worries.

I can´t remember who said it the other day but they were right. Deflation is not the issue. In(stag)flation most certainly is.

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so the fall in prices was down to energy costs.

now, maybe Im wrong, but the whole thing of reducing your costs is to increase your profit...not to reduce your price.

so maybe, just maybe, they are all fighting over a reduced demand...by cutting the price....lucky for them the energy costs are down.

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This time last year oil was $120+. It is currently $67. Once the drop that was seen last Autumn is reflected in these figures everybody will be screaming about inflation worries.

I can´t remember who said it the other day but they were right. Deflation is not the issue. In(stag)flation most certainly is.

You don't think oil can fall from here?

It seems many people are thinking that. How curious.

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You don't think oil can fall from here?

It seems many people are thinking that. How curious.

As it happens I think we´ll see oil trading in the $50-$80 range for the rest of the year but that is inconsequential to this argument.

The OP was pointing to deflationary signals. These can be wholly accounted for by the difference between the energy (mostly oil) prices 12 months ago and now. At this stage it looks likely that, come the end of this year, energy prices will by then be significantly higher than they were twelve months previously. They will then be creating inflationary pressure.

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As it happens I think we´ll see oil trading in the $50-$80 range for the rest of the year but that is inconsequential to this argument.

The OP was pointing to deflationary signals. These can be wholly accounted for by the difference between the energy (mostly oil) prices 12 months ago and now. At this stage it looks likely that, come the end of this year, energy prices will by then be significantly higher than they were twelve months previously. They will then be creating inflationary pressure.

This is just wrong....in business, your costs set a floor on the sales price.

here, sales prices are falling...that can only mean one thing...people are competing for business...the drop in energy costs is merely good fortune and allows for further drops in sales prices.

not all therefore will win orders....this is where the bust starts to cull excess production.

This is not good news for the public sector either as tax takes will fall.

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As it happens I think we´ll see oil trading in the $50-$80 range for the rest of the year but that is inconsequential to this argument.

The OP was pointing to deflationary signals. These can be wholly accounted for by the difference between the energy (mostly oil) prices 12 months ago and now. At this stage it looks likely that, come the end of this year, energy prices will by then be significantly higher than they were twelve months previously. They will then be creating inflationary pressure.

Just below the tipping point of around $95, not been able to find the article since but this was the figure given for at which point the oil price would itself cause a recession.

Don't most oil producers need it more towards $80 a barrel?

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Boo Loo, we´ll just have to agree to disagree.

IRRO, I have heard the $80 figure bandied around before but never been able (despite having spent a fair amount of time for an oil co.) been able to find how it was arrived at. To my mind it is all down to the cost of recovering the oil. It is a dammed sight cheaper to extract it in Saudi than the North Sea. The break even figure is thus much lower for the Saudis than the British.

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so the fall in prices was down to energy costs.

now, maybe Im wrong, but the whole thing of reducing your costs is to increase your profit...not to reduce your price.

so maybe, just maybe, they are all fighting over a reduced demand...by cutting the price....lucky for them the energy costs are down.

The PPI is made up of three components. Finshed goods price, intermediate goods price and raw materials price.

Unless you have the detail it is very hard to draw a conculsion that profit margins have decreased.

The release states it fell because of a fall in the raw materials component. I admit it did not say that finished goods price had remain the same or gone up.

One thing is certain though is that profitability of companies around the world has been surprisingly strong over the last 6 months beating expecations so it may be safe to assume that finished goods prices may have been reduced but not as much as reduction in raw materials so resulting in an increase in profitability for the business.

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Just below the tipping point of around $95, not been able to find the article since but this was the figure given for at which point the oil price would itself cause a recession.

Don't most oil producers need it more towards $80 a barrel?

Roubini thinks that oil at aout $100 will cause a double dip recession. Extract from the article on his website is below.

Roubini Project Syndicate Op-Ed: A Phantom Economic Recovery

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Nouriel Roubini | Aug 16, 2009

/......A second reason to fear a double-dip recession concerns the fact that oil, energy and food prices may be rising faster than economic fundamentals warrant, and could be driven higher by the wall of liquidity chasing assets, as well as by speculative demand. Last year, oil at $145 a barrel was a tipping point for the global economy, as it created a major income shock for the US, Europe, Japan, China, India and other oil-importing economies. The global economy, barely rising from its knees, could not withstand the contractionary shock if similar speculative forces were to drive oil rapidly towards $100 a barrel.

So, the end of this severe global recession will be closer at the end of this year than it is now, the recovery will be anaemic rather than robust in advanced economies, and there is a rising risk of a double-dip recession. The recent market rallies in stocks, commodities and credit may have gotten ahead of the improvement in the real economy. If so, a correction cannot be too far behind......\

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The PPI is made up of three components. Finshed goods price, intermediate goods price and raw materials price.

Unless you have the detail it is very hard to draw a conculsion that profit margins have decreased.

The release states it fell because of a fall in the raw materials component. I admit it did not say that finished goods price had remain the same or gone up.

One thing is certain though is that profitability of companies around the world has been surprisingly strong over the last 6 months beating expecations so it may be safe to assume that finished goods prices may have been reduced but not as much as reduction in raw materials so resulting in an increase in profitability for the business.

all im saying, guys, is that prices fall because demand is weak,.

if demand is week, energy prices fall, if energy prices fall, production costs fall, if production costs fall, either end prices remain the same and profits rise, or competition dampens prices and profits.

reading the article, consumer prices also fell.

these are not the signs of an economy in boom. except the writer said GDP was up...well, we all know thats down to public sector spending increases and is unsustainable.

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IRRO, I have heard the $80 figure bandied around before but never been able (despite having spent a fair amount of time for an oil co.) been able to find how it was arrived at. To my mind it is all down to the cost of recovering the oil. It is a dammed sight cheaper to extract it in Saudi than the North Sea. The break even figure is thus much lower for the Saudis than the British.

I was more thinking of state apparatus the oil supports rather than the extraction costs.

http://www.asiaecon.org/special_articles/read_sp/12952

When oil prices increase rapidly, Russia’s economy initially flourishes. For each $1 increase in the price of oil, Russia’s government budget earns about $1.7 billion a year, according to Yulia Tseplayeva, the chief economist for Merrill Lynch in Moscow. However, in Russian history, the two periods of most intensive economic change were preceded by long slumps in oil prices. Its dip from an 8 percent growth in 2008 to a 6.5 percent contraction in 2009 is considered the “most extreme of any major economy in the global slowdownâ€.

Falling oil prices are particularly bad for Russia. A large part of the country’s GDP comes from exporting its vast supply of crude oil and gas. Falling prices of oil may have other sever consequences for Russia, including a possible devaluation of the ruble and a severe drop in living standards. The decline in oil prices from $147 in July 2007 to below $50 today blew a large hole in the government’s budget calculations. It is now facing a $150 billion shortfall in its spending plans and so far is has cut expenditures in 2009. Chris Weafer, an analyst with the Moscow brokerage Uralsib has said that the country’s dependence on oil exports has made Russia’s economy is more vulnerable than other countries.

Roubini thinks that oil at aout $100 will cause a double dip recession. Extract from the article on his website is below.

Roubini Project Syndicate Op-Ed: A Phantom Economic Recovery

PrintShare

Delicious Digg Facebook reddit Technorati

Nouriel Roubini | Aug 16, 2009

/......A second reason to fear a double-dip recession concerns the fact that oil, energy and food prices may be rising faster than economic fundamentals warrant, and could be driven higher by the wall of liquidity chasing assets, as well as by speculative demand. Last year, oil at $145 a barrel was a tipping point for the global economy, as it created a major income shock for the US, Europe, Japan, China, India and other oil-importing economies. The global economy, barely rising from its knees, could not withstand the contractionary shock if similar speculative forces were to drive oil rapidly towards $100 a barrel.

So, the end of this severe global recession will be closer at the end of this year than it is now, the recovery will be anaemic rather than robust in advanced economies, and there is a rising risk of a double-dip recession. The recent market rallies in stocks, commodities and credit may have gotten ahead of the improvement in the real economy. If so, a correction cannot be too far behind......\

Interesting that Roubini has voiced the same concern.

The article I read was a few years old, I'm certain I've archived it somewhere in my CAG thread.

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