Inflation Update – What Inflation?
The trend in inflation remains muted at best. In my opinion, this is consistent with a weak economy where purchasing power is soft and aggregate demand remains tepid. The driver of the headline index remains energy prices which had tumbled 30% into the release of this data (the end of June). Energy prices have since rebounded 10% so we could be on the verge of some stabilization in prices. Nonetheless, we’re far from seeing any sort of upside inflation pressures as the headline posted just a 1.7% increase and the core posted a 2.2% increase.
My housing adjusted CPI is showing even weaker pricing trends. At just 0.58% year over year the index is very close to a deflationary reading. As you can see below this index has proven to be a fairly reliable leading indicator of inflation over the years. The current reading is pointing to an economy that remains very weak and likely weaker than the headline figure is currently saying.
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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BUT A FEW COMMODITIES ARE EXPERIENCING INFLATION, THEREFORE YOU’RE WRONG, DON’T YOU GO GROCERY SHOPPING? I PAY THE BILLS IN MY HOUSE, THEREFORE I KNOW YOU MUST BE A SHILL FOR THE FED & THEIR MASTERS.
#PremptiveStrike.
LOL! DCA is on fire!
Always appreciate the inflation gauge update…thx, Cullen
Corn, wheat, soybean, etc. futures, are through the roof. Something to keep an eye on…..
its weather related; what I have noticed about food prices is that, unlike oil, supply shocks are somewhat muted (probably because food production is global and people can substitute)
Does this affect your view of a low-growth economy? Any expectation of Fed action to offset it?
It just all looks like muddle through to me with bigger risks as we head into 2013. I’ve said all along that 2013 was the recession risk year. Maybe Q4 2012 if the fiscal cliff thing really materializes and businesses really pull back in preparation? But for now it just looks like we’re muddling through. Stall speed as Hatzius puts it. So not horrible, but not great.
Are you viewing a 2013 recession as a significant possibility or an outlier risk?
The last couple of years, the market has seemed to be rangebound. Intuitively, this makes sense, as our fundamental problems have not been fixed, and the QE programs intended to do nothing more than inflate asset classes temporarily. The economy will eventually
Cullen,
Any commentary on Peter Schiff’s latest Mayan Apocalypse prognostications?
Got a link? Sounds like a lot of crazy!
Figuratively, not literally “Mayan Apocolypse”, but basically it’s a load of “buy Gold because we’re going bankrupt; hyperinflation is imminent, perhaps the downfall of civilization itself” stuff. I should note that he’s flogging a book.
http://finance.yahoo.com/blogs/breakout/america-heading-towards-collapse-worse-2008-europe-says-155504860.html
Do people still consider him relevant? I get that he got the the housing bubble right and all but I figured his endless calls to go long gold and Asian equities, not to mention his predictions of hyperinflation and bearish views on US government debt, would’ve made people realize he genuinely has little clue as to how our economy operates.
Cullen, thanks for this chart. It looks like your chart leads the actual CPI. Can you elaborate on the breakdown and why that might be so? Thanks.
It does appear to lead some. I’ve adjusted it for housing prices and since that’s a huge component of the consumer balance sheet it’s possible that this index is showing some lead time on the broader economy. But I only have data on it running back to 94 so it’s a small data set.
Cullen, reposting my question from the other thread over here since it might be more relevant here:
a few noted economists including the Economist magazine in the latest issue, have come out with a suggestion that the Fed and BOE might want to actually target a higher rate of inflation say 3%, albeit temporarily and only with an aim of bringing unemployment down to 7% or below.
What do you think such a move would do – where the Fed explicitly states they are targeting 3% inflation or more, and thus raise everyone’s inflation expectations, cause a huge bond selling, and an equity rally?
What’s the transmission mechanism for higher growth? I’d like to target an 8 figure income this year. But I need a transmission mechanism to get there. And telling myself that I am awesome every morning isn’t going to make it happen.
Aren’t you working at a L/S fund in Diego now?
That might get you there…
No, I almost sold out earlier this year to a larger l/s fund, but decided to go a different direction. Setting up a fee only RIA currently. Looks like Mr. Roche is taking a pay cut to try to do something relatively noble.
I see. Somebody told me you just started working at a fund which starts with the letter ‘A’, but I forget the name of it. Just wondered.
Almost.
Not that managing a fund is not noble, but I have a very specific vision for the new company that will be much more in-line with what I preach here….
Going all Ray Allen up in here.
Same old story. If you eliminate the rising costs of education and health care, sure inflation is in check.
OH NO YOU DIDN’T!
We could debate education, but healthcare is rapidly improving/changing.
Case Shiller vs. OER
http://www.nowandfutures.com/images/case_shiller_vs_oer2.png
IS there a link to how you compute this figure (HA-CPI)?
appears inflation is on the rise year over year,and in a slugglish economy,which makes it even worse.
that long term graph is kind of useless since the way the cpi is calculated has been changed over the years.