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Consumers shutting down as US economy deflates

Santelli & Art Cashin get real on the Fed

The math is pretty simple: A lack of purchasing power for consumers has led to a lack of pricing power for companies.

When it comes to the U.S. economy big-picture outlook, the ramifications are more complicated, and not particularly pleasant.

Wednesday's producer price index reading, showing a monthly decline of 0.5 percent, demonstrates a larger problem: At a time when policymakers are hoping to generate the kind of inflation that would indicate strong growth, the reality is that deflation is looming as the larger threat. Declining prices often would be treated as a net positive by consumers, but income weakness is offsetting the effects.

Even Wall Street is feeling the heat. Prices for brokerage-related services and financial advice dropped 4.3 percent in September, accounting for about a quarter of the entire slide for final demand services.

Read More The US is closer to deflation than you think

The prospects heading into year's end are daunting.

In addition to the punk PPI number, retail sales gained by just 0.1 percent in September. Excluding autos, gasoline and building materials, sales actually declined 0.1 percent. On top of that, the August retail numbers were revised lower, with the headline rate now flat from the originally reported 0.2 percent gain.