Inflation Update – Creeping Up

I’m crunched for time today so this is going to be brief.  This morning’s CPI came in at just 1.7%, but we’re beginning to see some signs that the trend could be changing towards a rise in prices.  While the BLS data was tame, my Housing Adjusted CPI came in hot compared to last month.  The year over year reading of 1.6% is a full half percentage point higher than last month.  This is a clear sign that improving housing prices are starting to filter through the economy.

This could make for an interesting environment going forward.  A rising HA-CPI has tended to mean a stronger economy.  I don’t think that’s different here as the rise in this month’s reading is certainly consistent with my “no recession” stance.  And with the Fed’s latest QE program we’re likely to see other prices rising as expectations change.  We know that long-term inflation expectations spiked on yesterday’s news.

But it’s also important to keep things in perspective.  The long-term average rate of inflation is about 3.5% so even if YoY rates were to double from here we’d be back to average.  In other words, this economy is still operating well below capacity with pricing power so low.  So maybe a little inflation going forward wouldn’t be such a bad thing.

The concern with QE3 is that the inflation comes from the wrong places like speculation in commodity prices filtering through to gasoline prices, etc.  We’ll be keeping a close eye on things as we move into 2013.  For now, this looks benign, but prices are definitely creeping back up.


Got a comment or question about this post? Feel free to use the Ask Cullen section, leave a comment in the forum or send me a message on Twitter.

Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • hangemhi

    what’s your algo saying?

  • pollen_catcher


  • Jason H

    Cullen, to be more precise, how many years is the long-term range you’re referring to that is 3.5%? I read that from several years ago it was about 3.5% as you said & on the official CPI site, it says inflation has averaged about 2.6% for the past 80 yrs

  • Malmo
  • Malmo

    Salient points from above link:

    “20) The economic numbers you hear don’t mean squat. Headline inflation does not matter, ask yourself instead “what are my fixed expenses?” Start with food. Jobless claims #s cannot be compared to prior numbers because less people have the sorts of jobs that let you make those claims. For the #s to make sense you’d have to adjust them for the reduced # of jobs which allow claims. The unemployment rate has dropped even though there are, in absolute terms, less jobs, because people have given up looking.

    21) The money the Fed floods into the financial markets (quantitative easing, among others) is mostly NOT getting to ordinary people, and whatever Bernanke and his apologists say, it was never intended to. It is intended to prop up financial actors, and keep the rich richer. It has done what it is supposed to do.”

  • Johnny Evers

    Even at 4 percent, inflation is incredibly destructive. That doubles prices every 20 years.
    But wages don’t rise that fast. Gas, health care, education, groceries, etc., they double every 20 years, but wages don’t.
    Here’s another way to look at it.
    Inflation is only good for traders and asset holders. If you spend $100k per year, but you have assets of $500k, 4 percent inflation costs you $4k in spending but gives you $20k in growth.
    We have a financial/political/media class that is so far divorced from the reality of most Americans that these realities aren’t addressed. The only people who do address the problem of rising prices are Marxist or redistribution advocates, which is going to be bad for capitalism if they win the debate, which they probably will if events continue this way.

  • AWF

    Inflation expectations !
    Here is a technique to see what Traders are thinking/doing
    Simple: Divide These ETF’s: TIP by TLT

    When Inflation expectations are rising this ratio will be rising
    Here is a link with 30day and 90 day SMA