• Tag Archives Consumer Price Index
  • What the Heck’s Going On with Vintage Automobiles?

    The fate of asset bubbles under the new regime.
    Everyone is hoping that next Friday and Saturday, at Sotheby’s auction in Monterey, California, the global asset class of collector cars will finally pull out of their ugly funk that nearly matches that during the Financial Crisis. ‘Hope’ is the right word. Because reality has already curdled. Sotheby’s brims with hope and flair:
    Every August, the collector car world gathers to the Monterey Peninsula to see the magnificent roster of best-of-category and stunning rare automobiles that RM Sotheby’s has to offer. For over 30 years, it has been the pinnacle of collector car auctions and is known for setting new auction benchmarks with outstanding sales results.
    This asset class of beautiful machines – ranging in price from a 1962 Ferrari 250 GTO Berlinetta that sold for $38.1 million in 2014 to classic American muscle cars that can be bought for a few thousand dollars – is in trouble.
    The index for collector car prices in the August report by Hagerty, which specializes in insuring vintage automobiles, fell 1.0 point to 157.42. The index is now down 8% year-over-year, and down 15%, or 28.4 points, from its all-time high in August 2015 (186).
    Unlike stock market indices, the Hagerty Market Index is adjusted for inflation via the Consumer Price Index. So these are ‘real’ changes in price levels.

    This post was published at Wolf Street on Aug 15, 2017.

  • Two of Mexico’s Biggest Bugbears Surge Again

    Footloose hot money that has flooded Mexico can quickly dry up.
    By Don Quijones, Spain, UK, & Mexico, editor at WOLF STREET. After several consecutive months of predominantly positive developments, including the governing Institutional Revolutionary Party’s recent electoral victory in its key state, Estado de Mexico, the outlook for Mexico’s economy is no longer negative; it’s stable. That’s according to rating agencies, Fitch and Standard’s & Poor.
    It’s a remarkable turnaround for a country that began the year in the most ominous fashion, with a crumbling currency, surging inflation and a popular revolt against gasoline price hikes.
    But the peso, after plumbing to new depths of 22 pesos to the dollar on January 19, has clawed its way back to 17.8 pesos to the dollar – a 22% surge in just seven months.
    Despite its fortifying currency, Mexico’s historic bugbear of inflation continues to grow. Consumer prices, as measured by the national consumer price index, soared 6.44% in July compared to a year ago. It was the sharpest annual inflation rate increase since December 2008. It has now accelerated for the thirteenth month in a row.

    This post was published at Wolf Street by Don Quijones ‘ Aug 11, 2017.

  • Inflation Spikes Most since 2008 in Mexico. Bad Timing

    Before the Elections and despite Bank of Mexico’s ‘monetary shock.’ Inflation is a touchy topic in Mexico where wages are tight and not growing fast enough. Inflation is spiking. And consumers, trying stretch ever further just to keep up, are not happy.
    Consumer prices, as measured by the national consumer price index, soared 6.44% in July compared to a year ago, according to Mexico’s statistics agency INEGI. It was the sharpest annual inflation rate increase since December 2008, sharper than economists had forecast. It has now accelerated for the thirteenth month in a row. And it’s very much unwanted by regular Mexicans:
    The spike in inflation at the beginning of the year was to some extent due to a jump in gasoline prices brought on by deregulation of the gasoline market on January 1. At the time, some politicians in the opposition Democratic Revolution Party called on Mexicans to stage a ‘peaceful revolution’ against the price increases. It triggered a series of protests, and road blockages snarled traffic for days. But those gasoline prices didn’t come back down. On the contrary.

    This post was published at Wolf Street on Aug 10, 2017.

  • Have Bundesbank Agents Infiltrated the Fed?

    Germany’s central bank is the Bundesbank. Prior to the commencement of trading of the euro in January 1999, the Bundesbank conducted Germany’s monetary policy. The Bundesbank has a reputation for pursuing general price-level stability above all else. You might say that the Bundesbank has inflation phobia. The reason for this Bundesbank inflation phobia is the remembrance of the hyperinflation Germany experienced between World Wars I and II. Given the US central bank’s recent actions, it would almost seem that the Fed has developed inflation phobia too.
    Although the US does not have general price-level stability, the rate of change of the consumer price index (CPI), no matter how you slice or dice it, is absolutely low. This is illustrated in Chart 1. Plotted in Chart 1 are the 12-month percentages changes in monthly observations of various CPI measures – the CPI including all of its goods/services items, the CPI excluding its energy goods/services items and the Cleveland Fed’s 16% trimmed-mean CPI. The 16% trimmed-mean CPI eliminates components showing extreme monthly price changes. Eight percent of the weighted components with the highest and lowest one-month price changes are eliminated and the mean is calculated from the remaining components, making the 16% trimmed- mean CPI less volatile than either the CPI or the CPI excluding prices for energy goods/services. In the 12 months ended June 2017, the percentage changes in the CPI with all items, the CPI excluding energy items and the 16% trimmed-mean CPI were 1.6%, 1.6%, and 1.9%, respectively. Moreover, the 12-month percentage change in the CPI, no matter how you measure it, has been trending lower since the first two months of 2017.

    This post was published at FinancialSense on 07/17/2017.

  • Does a Falling Money Supply Cause Recessions?

    In his writings, Milton Friedman blamed central bank policies for causing the Great Depression. According to Friedman, the Federal Reserve failed to pump enough reserves into the banking system to prevent a collapse in the money stock (see Free to Choose). In response to this failure, Friedman argued the money stock M1, which stood at $28.264 billion in October 1929; fell to $19.039 billion by April 1933 – a decline of almost 33%.
    As a result of the fall in the money stock economic activity followed suit. By July 1932 year-on-year industrial production fell by over 31%. Also, year-on-year the consumer price index (CPI) had plunged. By October 1932, the CPI fell by 10.7%.

    This post was published at Ludwig von Mises Institute on June 8, 2017.

  • Margin Debt Pulls Back from Record Highs

    Note: The NYSE has released new data for margin debt, now available through May.
    The New York Stock Exchange publishes end-of-month data for margin debt on the NYX data website, where we can also find historical data back to 1959. Let’s examine the numbers and study the relationship between margin debt and the market, using the S&P 500 as the surrogate for the latter.
    The first chart shows the two series in real terms – adjusted for inflation to today’s dollar using the Consumer Price Index as the deflator. At the 1995 start date, we were well into the Boomer Bull Market that began in 1982 and approaching the start of the Tech Bubble that shaped investor sentiment during the second half of the decade. The astonishing surge in leverage in late 1999 peaked in March 2000, the same month that the S&P 500 hit its all-time daily high, although the highest monthly close for that year was five months later in August. A similar surge began in 2006, peaking in July 2007, three months before the market peak.
    You may also like Robin Griffiths on 1987-Style US Market Crash
    Debt hit a trough in February 2009, a month before the March market bottom. It then began another major cycle of increase.

    This post was published at FinancialSense on 06/28/2017.

  • The Money-Velocity Myth

    For most financial commentators an important factor that either reinforces or weakens the effect of changes in money supply on economic activity and prices is a velocity of money.
    It is alleged that when the velocity of money rises, all other thing being equal, the buying power of money declines (i.e., the prices of goods and services rise). The opposite occurs when velocity declines.
    If, for example, it was found that the quantity of money had increased by 10% in a given year, – while the price level as measured by the consumer price index has remained unchanged – it would mean that there must have been a slowing down of about 10% in the velocity of circulation.
    The mainstream view of money velocity According to popular thinking the idea of velocity is straightforward. It is held that over any interval of time, such as a year, a given amount of money can be used again and again to finance people’s purchases of goods and services. The money one person spends for goods and services at any given moment can be used later by the recipient of that money to purchase yet other goods and services.
    For example, during a year a particular ten-dollar bill might have been used as following: a baker John pays the ten-dollars to a tomato farmer, George. The tomato farmer uses the ten-dollar bill to buy potatoes from Bob who uses the ten dollar bill to buy sugar from Tom. The ten-dollars here served in three transactions. This means that the ten-dollar bill was used 3 times during the year, its velocity is therefore 3.

    This post was published at Ludwig von Mises Institute on June 27, 2017.

  • Global Equity Markets Firmer As Oil Stabilizes, Greece Gets Bailout Money

    (Kitco News) – World stock markets were mostly higher overnight. Crude oil prices are firmer today, which helped out the equities. Also, Greece’s creditors approved another release of bailout money for the indebted country, which assuaged European investors. U. S. stock indexes are pointed toward slightly higher openings when the New York day session begins.
    Gold prices are modestly up in pre-U. S. market trading, on a technical and short-covering bounce from solid selling pressure seen earlier this week.
    In overnight news, Russia’s central bank cut its key interest rate by 25 basis points. The Russian ruble rallied on the news.
    The Bank of Japan held its regular monetary policy meeting Friday and made no major changes in its policy.
    The Euro zone’s consumer price index for May was reported down 0.1% from April and up 1.4% from a year ago. The numbers were right in line with market expectations but down from the European Central Bank’s target rate of around 2.0% annual inflation.

    This post was published at Wall Street Examiner on June 16, 2017.

  • Why ‘Suddenly Hawkish’ Yellen Brushed off the Dip in Inflation

    She did her homework. And consumers got a temporary gift. A ‘suddenly hawkish’ Yellen, as she is now being prefaced by some voices, brushed off the dip in inflation when she spoke after the FOMC meeting yesterday.
    Inflation backtracked a tiny bit. The Consumer Price Index rose ‘only’ 1.9% year-over-year in May, and the core CPI without food and energy rose ‘only’ 1.7%. ‘Only’ in quotes because there is still enough inflation to whittle away at the purchasing power of wage earners who have to make do with stagnant wages and retirees who have to live off their near-zero-yield savings.
    But Yellen looked at the details of the inflation reports and discovered that there were some one-time or short-term factors that brought inflation down a bit – and none of them are going to last.

    This post was published at Wolf Street on Jun 15, 2017.

  • What Would Yellen Do, with these Retail Sales?

    The death spiral of the department store.
    Retail sales overall were not a disaster in May. But there were some disaster areas. Total retail sales in May dropped 0.3% from April, to $473.8 billion and were about flat with January, adjusted for seasonal variation and holiday and trading-day differences, but not for inflation, according to the Commerce Department this morning. But year-over-year, retail sales were up 3.8%.
    This year-over-year increase was in the middle of the five-year range of 1.6% to 5.2%.
    The Consumer Price Index rose 1.9% in May, year-over-year, according to the Bureau of Labor Statistics this morning. So the increase in ‘real’ retail sales, adjusted for inflation, was 1.9% year-over-year. This is also in the middle of the five-year range of 0% to 4.3%. In other words, in May, ‘real’ retail sales grew at the same lackadaisical rate we’ve seen for years:

    This post was published at Wolf Street on Jun 14, 2017.

  • Deflation, Easy Money, and the Boom-Bust Cycle

    According to the president of the Federal Reserve of St. Louis James Bullard the current level of US prices is noticeably lower than what it would be if the Federal Reserve had delivered on its 2% inflation target, calling the trend ‘worrisome.’ The yearly growth rate of the consumer price index (CPI) eased in April to 2.2% from 2.4% in March.
    Many economists maintain that a fall in prices generates expectations for a further decline in prices. As a result of this, it is held, consumers postpone their buying of goods at present since they expect to buy these goods at lower prices in the future. For most economists and various commentators a decline in the growth rate of the CPI raises the likelihood of an outright general decline in prices, which is labeled deflation and is considered to be a terrible thing.
    Consequently, this weakens the overall flow of spending and this in turn weakens the economy. A fall in consumer expenditure subsequently not only weakens overall economic activity but also puts further pressure on prices. Or so it is argued. Note that from this it follows that deflation sets in motion a spiraling decline in economic activity.

    This post was published at Ludwig von Mises Institute on June 2, 2017.

  • Inflation Isn’t Evenly Distributed: The Protected Are Fine, the Unprotected Are Impoverished Debt-Serfs

    Welcome to debt-serfdom, the only possible output of the soaring cost of living for the unprotected many who are ruled by a hubris-soaked, subsidized Protected Elite.
    The Consumer Price Index (CPI) measure of inflation is bogus on a number of fronts, a reality I’ve covered a number of times: though the heavily gamed official CPI is under 2% for the past four years, the real rate is 7% to 12%, depending on whether you happen to live in locales with soaring rents/housing and healthcare costs. The Burrito Index: Consumer Prices Have Soared 160% Since 2001 (August 1, 2016) Revealing the Real Rate of Inflation Would Crash the System (August 3, 2016) The Disaster of Inflation–For the Bottom 95% (October 28, 2016) But the other reality is that inflation is not evenly distributed throughout the economy or populace: many people have little exposure to the crushing inflation of healthcare and higher education. For these people, inflation is a non-issue or a minor impact on their wealth, income and lifestyle.

    This post was published at Charles Hugh Smith on WEDNESDAY, MAY 24, 2017.

  • Don’t Believe ‘Eerily Low’ Inflation in Canada: National Bank

    This is how it’s ‘understated.’
    We have long lamented the persistent understatement of soaring US housing costs in the Consumer Price Index, and thus the understatement of overall inflation as experienced by people with a roof over the head. But now two economists from the National Bank of Canada spell out their doubts about the housing inflation component in Canada’s overall CPI.
    The Consumer Price Index in Canada rose 1.6% in April year-over-year seasonally adjusted, Statistics Canada reported last week, same as in March, but down from 2.0% in February. Over the past four years, CPI inflation ranged from 0.4% to 2.4%.
    For inflation lovers, it was too tame. But Canadians – like Americans who’re in a similar boat – have long complained that life overall is getting a lot more expensive a lot faster than reflected in the CPI. And a big part of that expense is housing costs for owners and renters.

    This post was published at Wolf Street by Wolf Richter ‘ May 23, 2017.

  • This Is How an Asset Bubble Gets Unwound these Days

    What the slow crash of classic car prices says about the future of other asset classes.
    The global asset class of collector cars – these beautiful machines are perhaps one of the most enjoyable asset classes to play in – is quietly but persistently and very unenjoyably experiencing a downturn that parallels and in some aspects already exceeds the one during the Financial Crisis.
    The index for collector car prices in the May report by Hagerty, which specializes in insuring vintage automobiles, fell 0.68 points to 160.06, down nearly 10% year-over-year, and down 14%, or 25.8 points, from its all-time high in September 2015 (185.86).
    Unlike stock market indices, the Hagerty Market Index is adjusted for inflation via the Consumer Price Index. So these are ‘real’ changes in price levels. Since September 2015, the Consumer Price Index has risen 2.8%. So in unadjusted terms, comparable to stock market indices, the price levels dropped nearly 17%.
    To put that into a Financial Crisis perspective: The index peaked in April 2008 at 121.0, then plunged 16% (20 points) to bottom out in August 2009 at 101.39. So the current drop of 14% from the peak in ‘real’ terms is just below the drop during the Financial Crisis, but the current 25.8-point-drop from the peak already exceeds by a wide margin the 20-point drop during the Financial Crisis.

    This post was published at Wolf Street on May 17, 2017.

  • Is Bacon Feeding the War Machine?

    The Wall Street Journal offered a cute news scoop that ice cream is more important than bacon when tracking what has come to be known as inflation. Sarah Chaney was stalking the U. S. Department of Labor Blog and stumbled on the post ‘Ice Cream vs. Bacon.’
    No doubt, those on the paleo diet would be stunned to know ‘the average dollar amount per year that all U. S. households spent on ice cream was $54.04, while the average amount on bacon was $39.07,’ claims the department’s post.
    Why Does the Price of Bacon Matter?
    Why this matters to number-crunchers at the labor department is ‘the more people spend on an item, the more inflationary changes to its cost will affect the total inflation rate,’ explains Department of Labor blogger Steve Henderson. And in this case, ‘bacon has increased in price almost 32 percent over the past 10 years while ice cream went up 21 percent over the same time period.’
    There are inflation indexes for most everything and are all rolled together into the Consumer Price Index (CPI) to form a market basket.
    Of course, Mr. Henderson and his fellow workers believe they are doing ‘God’s’ work at the Labor Department. He emphasizes:
    ‘Policymakers, researchers, journalists, government bodies and others use the CPI to make important decisions that directly affect American citizens.’
    Yes, but as I related in ‘Garbage In Garbage Out at the Federal Reserve,’ the collection of this precious data is, well, somewhat suspect.

    This post was published at Mises Canada on MAY 12, 2017.

  • The Fed Gets another Reason to Raise Rates and Unravel QE

    Inflation pressures further up the pipeline rise the most in 5 years.
    The Producer Price Index, which measures inflation at the wholesale level for goods and services, and thus up the pipeline from the Consumer Price Index, jumped 2.5% in April from a year ago, the steepest increase since February 2012, blowing past consensus expectations of 2.2% (chart by Trading Economics):
    On a monthly basis, seasonally adjusted, wholesale prices rose 0.5% from March. Nearly two-thirds of that increase was due to services, the biggest part of the US economy, where prices increased 0.4% from March. Among the standouts, services less trade, transportation, and warehousing, jumped 0.8% from March.
    And it wasn’t ‘food and energy’: the PPI without food and energy (‘core’ PPI) jumped 0.7% from March, its 11th month in a row of increases. It’s up 2.1% year-over-year. Back in March, it was up only 1.7%. So picking up momentum.

    This post was published at Wolf Street on May 11, 2017.

  • Rising Oil Prices Don’t Cause Inflation

    Correlation vs. Causation A very good visual correlation between the yearly percentage change in the consumer price index (CPI) and the yearly percentage change in the price of oil seems to provide support to the popular thinking that future changes in price inflation in the US are likely to be set by the yearly growth rate in the price of oil (see first chart below).
    But is it valid to suggest that a price of an important input such as oil is a key determinant of the prices of goods and services? It is true that producers of goods and services set asking prices. It is also true that producers, while setting prices, take into account various production costs including the cost of energy.

    This post was published at Acting-Man on May 11, 2017.

  • Devonshire: True Inflation Is Three Times Higher Than Officially Reported

    A fascinating, recent report by the Devonshire Research Group, whose recent work on Tesla was featured here one year ago, has moved beyond the micro and tackled on of the most controversial macroeconomic topic possible: what is the true rate of inflation. What it finds is that, like others before it most notably Shadowstats and Chapwood, the accepted definition of inflation, or CPI, is dramatically understated for various reasons, both political and economic.
    For those unfamiliar with the “alternative” explanations of inflation measurement, and the implications if CPI is indeed drastically underestimating true inflation, the report is a real eye opener.
    Devonshire sets the scene by noting that a wide variety of Price Indices are used to adjust for the effects of Inflation on the economy. These adjustments are widely applied to derive a number of common measures and underlie many critical economic and asset management concepts
    Price Indices: the Consumer Price Index (CPI), the Producer Price Index, the GDP Deflator Economic concepts: the Standard of Living, Real Income and Output, Real Economic Growth Asset Management concepts: Real Interest Rates, the Risk-Free Rate of Return, the Cost of Capital

    This post was published at Zero Hedge on May 9, 2017.

  • The Connection Between Money-Supply Growth and Inflation

    In the article ‘Rapid money supply growth does not cause inflation’ written by Richard Vague at the Institute for New Economic Thinking, December 2, 2016, the author argues that empirical evidence shows that increases in money supply has nothing to do with inflation. According to Vague,
    Monetarist theory, which came to dominate economic thinking in the 1980s and the decades that followed, holds that rapid money supply growth is the cause of inflation. The theory, however, fails an actual test of the available evidence. In our review of 47 countries, generally from 1960 forward, we found that more often than not high inflation does not follow rapid money supply growth, and in contrast to this, high inflation has occurred frequently when it has not been preceded by rapid money supply growth.
    Now Vague defines inflation as, three or five consecutive years of increases in the consumer price index (CPI) of 5% or more. Based on this he has concluded that an increase in the money supply does not cause inflation.

    This post was published at Ludwig von Mises Institute on April 5, 2017.

  • Central Banks’ Obsession with Price Stability Leads to Economic Instability

    Fixation on the Consumer Price Index
    For most economists the key factor that sets the foundation for healthy economic fundamentals is a stable price level as depicted by the consumer price index.
    According to this way of thinking, a stable price level doesn’t obscure the visibility of the relative changes in the prices of goods and services, and enables businesses to see clearly market signals that are conveyed by the relative changes in the prices of goods and services.
    Consequently, it is held, this leads to the efficient use of the economy’s scarce resources and hence results in better economic fundamentals.
    The Rationale for Price-Stabilization Policies
    For instance, let us say that demand increases for potatoes versus tomatoes. This relative strengthening, it is held, is going to be depicted by a greater increase in the price of potatoes than for tomatoes.
    Now in an unhampered market, businesses pay attention to consumer wishes as manifested by changes in the relative prices of goods and services. Failing to abide by consumer wishes will result in the wrong production mix of goods and services and therefore lead to losses. Hence in our example, by paying attention to relative changes in prices, businesses are likely to increase the production of potatoes versus tomatoes.

    This post was published at Acting-Man on May 4, 2017.