As hyperinflationists howl about the rebound in oil prices, others calmly note Japan’s producer prices fell a record 6.6% in June.

Japan’s producer prices fell at a record pace in June as oil costs declined and companies required fewer materials amid a global recession. The costs companies pay for commodities and unfinished goods tumbled 6.6% from a year ago after sliding a revised 5.5% in May, the Bank of Japan said.

The year-over-year drop in costs was the biggest since the central bank started compiling the report in 1960. Prices fell 0.3% in June from May, when they declined a revised 0.5%, the report said.

Consumer prices excluding fresh food -- the central bank’s preferred gauge of inflation -- fell 1.1% in May from a year ago, the sharpest decrease since comparable figures were first compiled in 1971. Corporate service prices also dropped a record 3%.


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While the rebound looks impressive on a log chart, Fibonacci retrace levels show the real story. Crude oil prices didn't even muster the strength to get to the 38.2% retrace level.

Moreover, technicals are now pointing down -- as evidenced by the moving average convergence/divergence (MACD) and commodity channel index (CCI) in the above chart. A pullback to $50 or even $40 is certainly not out of the question. And if that happens, expect to see media concerns over deflation.

The truth is the rebound in oil prices proved nothing in regards to the inflation-deflation debate, nor will a retest of the December lows -- if that should occur.

Inflation is a monetary event, not a price event. And even if inflation was regarded as a price event, speculation In China does not constitute inflation in the US.

Oil is subject to peak oil concerns, increasing demand from China, and speculative pressures. As such -- in isolation -- the price of oil is a poor measure for inflation regardless of how one views inflation and deflation.

For traders, the technicals and the fundamentals both look weak.

Green shoots are withering on the vine, fuel supplies are rising, crude oil supply far outstrips motorist demand, tankers at sea act as floating storage, and the technicals look dismal.

For now, that's what matters -- peak oil be damned.