Over the past few weeks, I’ve been talking a little bit about how a shrinking money supply would slow down inflation. It looks like some data has finally come out which supports this view.

In August, producer prices fell 0.9 percent thanks to the big drop in energy prices. Now, if the prices producers are paying each other are dropping, then we should see a small drop in consumer prices.

Lo and behold, consumer prices for August fell 0.1 percent. Gasoline prices fell 4.2 percent, and fuel oil prices fell a massive 9.6 percent (the most in five years).

As the economy continues to slow, we will continue to see drops in inflation readings. As inflation wanes, the attractiveness of gold and silver will wane with it. And this should give the Fed some more room to continue dropping rates.

While I’m not calling an end to inflationary times (or the bull-run in precious metals), we should see a slowdown over the next 12 months.

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