Americans caught a little break in June because producer prices fell, meaning a little less strain on people's wallets. But Americans were even luckier because producer prices also rose.

What's behind the apparent contradiction? The June producer price index as a whole fell 0.5% -- but the core rate, which excludes often-volatile food and energy prices, rose 0.1%. And, yes, a small rise in the core rate is good news, because while everyone likes lower prices when they have less money to spend, the greater concern for the overall U.S. economy at this stage of the recovery is deflation -- a sustained period declining prices.

Deflation robs companies of revenue, which could lead the economy back into a recession, or even worse conditions -- and that's a scenario the Federal Reserve would take considerable pains to prevent.

The consensus view of economists surveyed by Bloomberg had been that producer prices would fall 0.1% in June, while the core rate would rise 0.1%. Producer prices fell 0.3% and core rate rose 0.2% in May.

Little Inflation in the Past Year

Inflation at the wholesale level has remained modest in past 12 months, rising 2.8% -- neither too high nor in danger of falling in to deflation. Wholesale prices rose 4.4% in 2009 and 0.9% in 2008.

Further, the more telling core rate is even lower: It has risen just 1.1% in the past year. That rate is still within the Fed's 'comfort zone' for inflation, but it's about as low as the Fed would like to see the 12-month core rate fall, due to the deflation concern.

For those concerned about inflation, these numbers mean that, after excluding food and energy, there has been little inflation at the wholesale level in the past 12 months.

Separately, Empire State Manufacturing Index showed that business activity in the state of New York slowed substantially in June. The index fell 15 points to 5.1 last month, the New York Federal Reserve announced Thursday. The 5.1 reading still indicates that economic conditions are improving, but at a slower rate than they were earlier this year. Economists surveyed by Bloomberg expected the index to register a much milder dip to 18 in June.

Though it focuses solely on New York, the Empire State index typically provides early clues about manufacturing in the nation as a whole, ahead of the wider reports released later in the month, such as the Institute for Supply Management's manufacturing survey.

Staying Focused on the Core Statistic

Returning to June's producer price report, it's easy to see which factor pushed the wholesale price index lower last month: Food prices fell 2.2% and and energy prices declined 0.5%. Meanwhile, intermediate goods fell 0.9% and finished goods declined 0.5%.

June's producer price reports shows little pricing power at the wholesale level -- businesses are unable to raise prices -- with some sectors under price pressure. That means a period of continued, low inflation is the likely scenario. At minimum, the current producer price index trend will enable the Fed to maintain its "extended period" of low-interest rate monetary policy to stimulate the economy. At this juncture, inflation is not a threat, and deflation remains the greater concern.

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