INFLATION? WHAT INFLATION?
CPI data was very weak this morning showing an inability for corporations to pass along higher prices and a general malaise at the consumer level. With the exception of energy prices (which has been highly volatile) the overall index was little changed and remains very low by just about any metric (via Econoday):
“Consumer price inflation remained somewhat on the warm side, thanks to higher energy costs. However, core inflation eased further to nonexistent. The overall CPI in August posted a 0.3 percent rise, equaling the boost in 2July. The latest gain topped the median forecast for a 0.3 percent advance. Excluding food and energy, CPI inflation slowed to no change, coming in below analysts’ expectations for a 0.1 percent rise. Playing a key role in softening the core rate was an unchanged shelter index.”
It’s going to continue. Have you looked over the Fed Flows yet? Nine strait quarters of household debt contraction. Last quarter was the largest contraction on record, 2.3% at an annual rate. I still don’t think people fully appreciate this. It’s literally a once in a generation event. You don’t get the full scope until you actually stare at the chart, and the string of continually positive numbers going back to the beginning of the data, and see the plunge at the end.
This is an index I altered from the CPI to try to include housing inputs with a marginally higher weighting on commodity inputs. It tells a much more dramatic story in the inflation data:
That’s YoY change and it’s interesting to note that as we see the consumer falter again and the govt step aside the index is rolling over….
Nice work, TPC. Certainly looks like a much more “real world” inflation gauge than the CPI. I love 2003-2005 running at 6-10% YoY. Here’s one more thing to consider, think how that drop from +10% to -8% YoY helped to buffer the de-leveraging process for the private sector. Yet we still can’t get any kind of real GDP growth outside of a temporary burst of govt stimulus and an inventory rebuild.
private sector and consumer is still very weak. We’re clearly still in a disinflationary environment with a higher risk of deflation than high inflation or hyperinflation.
Agreed.
Great chart TPC. Looks like we were running higher than average inflation before the bust and now we’re going through the deflation and de-leveraging. It’s ominous how the chart is rolling over with the market.
Aside from a few commodity prices it’s clear in the price data that deflation remains the risk.
This chart is probably worth a detailed article. I have always been puzzled about the exlusion of key items from the inflation measurement, especially since they consume such a large portion of HH expenses.
While I agree with your general conclusion, I feel I am missing the supporting data.
This chart includes the average cost of a house since 1990. The BLS excludes housing because its an investment and a rare purchase, however, I find that hard to justify. When you spend 5X your annual income on something it impacts your decision making for a long time. Obviously the purchases are rolling and occur at different times, but it’s by far the single most important input in ones every day spending decisions. Can I make my mortgage payment is the ultimate thought in every consumer’s head. The other spending decisions all revolve around this one input. The actual CPI data is very good in my opinion and done in great detail and well justified. It comes very close to accounting for the average household’s expenses despite what the critics say. This, however, is a sizable flaw. We were suffering high inflation in the mid-2000′s and yet the BLS told us everything was benign. Arguably the largest economic misstep in the history of the USA.
Anyhow, here’s another chart that is very good. It’s the Trimmed Mean. Also good for removing lots of the monthly noise and providing a good estimate of real inflation:
Spot on and so fundamental I can’t imagine why everyone doesn’t see it this way. With respect to inflation, everything else is just noise right now.
From the Cleveland Fed–Chart applet on Inflation measures
Check it out
http://www.clevelandfed.org/research/Data/US-Inflation/chartsdata/index.cfm?state1=12&state2=&state3=&state4=&startDate=01/01/2008&endDate=09/17/2010&datatype=2&freq=monthly
The people pushing the inflation theme have an agenda. They are all gold and precious metal pumpers. While they cite rising commodities they fail to note that commodities account for a small overall % of consumer prices. And gold and silver have no impact on consumers at all.
Housing bubble? What housing bubble?