• Tag Archives Consumer Price Index
  • Weekend Reading: You Have Been Warned

    Investors aren’t paying attention.
    There is an important picture that is currently developing which, if it continues, will impact earnings and ultimately the stock market. Let’s take a look at some interesting economic numbers out this past week.
    On Tuesday, we saw the release of the Producer Price Index (PPI) which ROSE 0.4% for the month following a similar rise of 0.4% last month. This surge in prices was NOT surprising given the recent devastation from 3-hurricanes and massive wildfires in California which led to a temporary surge in demand for products and services.
    Then on Wednesday, the Consumer Price Index (CPI) was released which showed only a small 0.1% increase falling sharply from the 0.5% increase last month.

    This post was published at Zero Hedge on Nov 17, 2017.


  • New York Fed’s ‘Underlying Inflation’ Hits 11-Year High

    Something is moving beneath the surface. Today is inflation day. After the Bureau of Labor Statistics released its Consumer Price Index for October this morning, several other inflation gauges were released, all based on rejiggering in some way the minute disaggregated details of the BLS data pile. This includes the Atlanta Fed’s ‘Sticky-Price CPI,’ which ticked up 2.2%, and the New York Fed’s ‘Underlying Inflation Gauge,’ which hit the highest level since August 2006.
    Inflation – when defined as increase in consumer prices – is very much in the eye of the beholder, or rather of the spender. Every household has its own inflation rate, depending on whether they have kids in college, have high medical expenses, or rent an apartment in a city where rents are high and soaring at double-digit rates.
    And now that the New York Fed’s Underlying Inflation Gauge has hit an 11-year high, in a sign of things to come, we better take a look at it.
    The UIG comes, like most inflation measures, in two forms: The ‘prices-only’ UIG, which is based on 223 disaggregated price series in the CPI and is comparable to a ‘core’ inflation measure; and the ‘full data set’ UIG, which incorporates all the data of the ‘prices-only’ UIG plus 123 macroeconomic and financial variables.

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


  • Looking For Inflation In All The Wrong Places

    A policeman sees a drunk man searching for something under a streetlight and asks what the drunk has lost. He says he lost his keys and they both look under the streetlight together. After a few minutes the policeman asks if he is sure he lost them here, and the drunk replies, no, and that he lost them in the park. The policeman asks why he is searching here, and the drunk replies, ‘this is where the light is’. – The Streetlight Effect
    The drunk in the above story is an idiot, of course. But no more so than modern economists who can’t find inflation because they’re looking only at the part of the economy covered by their government’s Consumer Price Index.
    But gradually, grudgingly, a handful of mainstream economists do seem to be figuring out that the soaring value of stocks, bonds, real estate, fine art, collectibles and cryptocurrencies is a legitimate sign of a depreciating currency and future instability. Inflation, in other words. From yesterday’s Morningstar:
    Lack of inflation is a global issue
    (Morningstar) – The lack of inflation is a global issue. Unemployment is at cyclical lows in the US, Germany, and Japan, yet in each of these countries there is only small evidence that wages are picking up. No doubt globalisation and technology are common factors that have helped constrain wages across countries.

    This post was published at DollarCollapse on NOVEMBER 14, 2017.


  • “We Have Reached A Turning Point”: Trader Explains Why Today’s CPI Could Send Equities Reeling

    From the latest Macro View by Bloomberg commentator and former Lehman trader, Mark Cudmore
    Equities Must Fear CPI Now the Fed Put Era Is Over
    A surprise in either direction from today’s U. S. consumer price index print is likely to hurt global stocks.
    For many years, in the wake of QE, we became used to markets where ‘good data is good for equities and bad data is good for equities.’ The logic was that bad data implied a greater likelihood more liquidity would be pumped into the system, whereas good data inspired confidence that the economic recovery was on track.
    Today might mark a turning point where we more frequently trade the opposite dynamic. The Fed has fought so hard to convince investors that the economy can cope with hikes and balance-sheet reduction that it may have boxed itself into a corner. It can’t retreat from its policy path without seriously undermining its credibility.

    This post was published at Zero Hedge on Nov 15, 2017.


  • What Do You Mean ‘No Inflation?’

    When the Fed launched its aggressive monetary policy in the wake of the 2008 financial crisis, many free-market economists predicted it would result in massive price inflation. That never materialized. As a result, Keynesian economists like Paul Krugman love to finger-point and mock those who criticize easy money policies designed to ‘stimulate aggregate demand.’ They claim the lack of price inflation proves they were right all along. You can massively increase the money supply during a downturn to stimulate the economy without sparking inflation. Free-market people are wrong.
    But just because we don’t see price inflation doesn’t mean there isn’t any inflation at all. After all, the new money has to go someplace. If we don’t see it manifested in rising prices, it’s because we’re looking in the wrong place.
    In response to the Great Recession, the Federal Reserve plunged interest rates to near zero and held them at historically low levels for several years. It also engaged in three rounds of quantitative easing – in essence, printing money out of thin air. Over a span of nearly seven years, the Fed’s balance sheet increased 427%. With all of that new money entering into the economy, one would expect a significant increase in price inflation. And yet the rise in the consumer price index has been muted. In fact, officials at the Federal Reserve constantly fret about the lack of price inflation.
    So where did all that money go?

    This post was published at Schiffgold on NOVEMBER 2, 2017.


  • Wheezing Consumers & Slowing Economy, No Problem: UK Inflation Jumps Most in 5+ Years. Rate Hike Due in November

    The Fed leads, other central banks follow.
    The UK is not the only one. But it’s furthest ahead. In the US, consumer prices as measured by the Consumer Price Index rose 2.2% in September compared to a year ago. In the Eurozone, prices rose 1.5%. And today the UK’s Office for National Statistics reported that consumer prices in the UK jumped 3.0%, after having already risen 2.9% in August. It was the biggest increase since April 2012.
    And inflation is outpacing wage increases, which inched up a meager 2.1%, slamming consumers further, and hampering the UK economy that is already showing signs of strain, with, for example, new vehicles sales plunging over 9% in September from a year ago.
    Inflation has now been above the Bank of England’s target of 2.0% for the eighth month in a row:

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


  • Yellen Was Right: ‘Transitory’ Factors of ‘Low’ Inflation Are Reversing, with Much More to Come

    What’s Boiling Beneath the Surging Inflation?
    Consumers are going to shell out more money for the same stuff, that’s for sure. Inflation as measured by the Consumer Price Index jumped 2.2% in September compared to a year ago, the Bureau of Labor Statistics reported this morning. All fingers pointed at energy costs: the index jumped 10.1% year-over-year. Within it, ‘motor fuel’ prices (gasoline and diesel) jumped 19.2%.
    Food prices rose 1.2% year-over-year, kept down by prices for ‘food at home’ – the stuff you buy at the grocery store – which inched up only 0.4% year-over-year in part due to the price war currently tearing into the supermarket sector.
    In the chart below of CPI, note the dreadful ‘Deflation Monster’ – one of those rare and brief occasions in the US when the purchasing power of wages actually rose just a tiny bit on a year-over-year basis. It was caused by the energy bust. And it was ‘transitory’:

    This post was published at Wolf Street on Oct 13, 2017.


  • Looking For A Last Minute ‘Cheap’ Trade On A CPI Miss?

    Demand has exploded for a cheap options bet which stands to benefit should the market-implied odds of a Federal Reserve rate hike in December tumble.
    As Bloomberg reports, the eurodollar call option involved expires Friday, so the biggest chance the wager has to profit lies with a weaker-than-forecast print on the September consumer price index, set for release at 8:30 a.m. New York time.
    The options position emerged Wednesday, and was added to dramatically on Thursday, CME open interest data show.
    Expectations are for a 0.6% rise in CPI MoM (Core CPI +0.2% exp) and the whisper number is for a 0.5% rise.
    The current odds for a Dec rate hike are 80.2%…

    This post was published at Zero Hedge on Oct 13, 2017.


  • About Those “Hedonic Adjustments” to Inflation: Ignoring the Systemic Decline in Quality, Utility, Durability and Service

    The quality, durability, utility and enjoyment-of-use of our products and services has been plummeting for years.
    One of the more mysterious aspects of the official inflation rate is the hedonic quality adjustments that the Bureau of Labor Statistics makes to the components of the Consumer Price Index (CPI). The basic idea is that when innovations improve the utility (and pleasure derived from) a product, the price is adjusted to reflect this improvement. So if television screens become larger, while the price per TV remains the same, the hedonic quality adjustment adjusts the price down when calculating the CPI. In other words, since we’re getting more for our money–more quality, more features, more goodies, more pleasure–the price is adjusted down to reflect this. If a TV that cost $250 had a 19-inch screen in the old days, and now a $250 TV has a 27-inch screen, the price of TVs in the CPI is adjusted down to reflect this increase in what the consumer is getting for her $250. So while a TV still costs $250 to the consumer, in terms of measuring inflation the TV is reckoned to cost (for example) $225, as the consumer is getting a larger screen for her $250.

    This post was published at Charles Hugh Smith on TUESDAY, OCTOBER 10, 2017.


  • Be Careful What You Wish For: Inflation Is Much Higher Than Advertised

    What the Federal Reserve is actually whining about is not low inflation–it’s that high inflation isn’t pushing wages higher like it’s supposed to. It’s not exactly a secret that real-world inflation is a lot higher than the official rates–the Consumer Price Index (CPI) and Personal Consumption Expenditures PCE). As many observers have pointed out, there are two primary flaws in the official measures of inflation: 1. Big-ticket expenses such as rent, healthcare and higher education–expenses that run into the thousands or tens of thousands of dollars annually–are severely underweighted or mis-reported. While rents are soared, the CPI uses an arcane (and misleading) measure of housing costs: owners equivalent rent. Why not just measure actual rents paid and actual mortgages/property taxes/home insurance premiums paid?

    This post was published at Charles Hugh Smith on WEDNESDAY, OCTOBER 04, 2017.


  • What Few Expect: Inflation Will Surge, Destablizing the Status Quo

    Few seem to ponder what global shortages in key commodities might do to prices.
    If there is any economic truism that is accepted by virtually everyone, it’s that inflation is low and will stay low into the foreseeable future. The reasons are numerous: technology is deflationary, globalization is deflationary, central banks will keep interest rates near-zero essentially forever, and so on.
    Just for laughs, let’s look at healthcare, almost 20% of America’s entire economy, as an example of low inflation forever. If being up over 200% in the 21st century is low inflation, I’d hate to see high inflation.
    Here’s the official Consumer Price Index (CPI), which as many have noted, severely distorts real-world inflation by claiming big-ticket items such as college tuition and healthcare are mere slivers in household budgets.
    Note the remarkably stable trend line in CPI over the past 40 years. This certainly doesn’t shout “inflation is near-zero and will stay low indefinitely.”
    Here’s the PCE, Personal Consumption Expenditures, the Federal Reserve’s favored measure of core inflation. Let’s put it this way: either the PCE is real and the CPI is false, or vice versa; they can’t both be accurate measures of real-world inflation.

    This post was published at Charles Hugh Smith on OCT 3, 2017.


  • Will Low Unemployment Cause Accelerating Inflation?

    In August the US unemployment rate closed at 4.4% against 4.3% in the month before. The relatively low unemployment rate seen by some commentators as implying that the US is almost at the so-called natural rate, which believed to be at around 4.5%.
    It is held that once the unemployment rate falls below an “optimal” rate -called the Non-Accelerating Inflation Rate of Unemployment (NAIRU) -it sets off an inflationary spiral. This acceleration in the rate of inflation takes place through increases in the demand for goods and services.
    It also lifts the demand for workers and puts pressure on wages, reinforcing the growth in the rate of inflation.
    The NAIRU is an arbitrary measure, derived from a statistical correlation between changes in the consumer price index and the unemployment rate.
    What matters in the NAIRU framework is whether the theory “works”, i.e., whether a decline in the unemployment rate below the NAIRU results in the acceleration in the rate of inflation.
    Using statistical correlation as the basis of a theory means that “anything goes.” For example, let us assume that a high correlation has been found between the income of Mr. Jones and the rate of growth in the consumer price index. The higher the rate of increase of Mr. Jones’ income, the higher the rate of increase in the consumer price index.

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


  • A Look at NYSE Margin Debt and the Market

    Note: The NYSE has released new data for margin debt, now available through July.
    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.
    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 09/06/2017.


  • 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.