Economists React to CPI data

The usual WSJ round up of reactions from Economists: 

"Higher petroleum prices continued to push consumer prices upward in April, the latest Labor Department report on the consumer-price index showed, but there were signs that inflation pressures in other sectors of the economy had ebbed, as the closely watched "core" reading idled. Will prices resume their upward march in May, or has the energy-driven run-up in consumer inflation faded? Economists on Wall Street and elsewhere weigh in:"

Now if only consumers can figure out how to get through their day
without eating food or burning fuel, they’ll have little inflation
worries . . .

* * *

The average person’s budget took a hit in April as the Consumer Price Index jumped. But excluding food and energy, where prices were up strongly, retail prices were flat. And it is that flat core number that will catch everyone’s attention. The biggest reason for the tame core index was that clothing and computer prices fell sharply. Don’t you just love that flood of cheap Chinese imports? Just wait until quotas get reinstated.

— Joel L. Naroff, Naroff Economic Advisors

* * *

Overall inflation is under control and should moderate as we move through the summer. After the seasonal boom in new home construction abates, GDP growth will slow and the Federal reserve will have the option of halting its rate increases later this year. … Falling inflation adjusted wages reflects a job market that rewards the highly-skilled and stiffs the ordinary working family.

— Peter Morici, Robert H. Smith School of Business, University of Maryland

* * *

As was first noted by Fed economists a few years ago, the owners’ equivalent rent gauge (and thus the core CPI) can be impacted — in a rather bizarre way — by big swings in the cost of household utilities. The OER gauge is intended to capture the pure cost of shelter, so swings in utility prices are stripped out. Thus, a sharp jump in utility prices means lower OER and vice versa. In this case, OER (which counted for 30% of the core) was probably depressed by 0.1 pct pt due to the spike in utilities.

— David Greenlaw and Ted Wieseman, Morgan Stanley

* * *

For the time being energy prices had their last hurrah with a 4.5% increase.  Core inflation however was unchanged as apparel prices and lodging costs away from home both fell, 0.6% and 1.2% respectively. There were additional favorable inflation readings for new vehicles and for other goods and services making the reading a relatively broad based one. According to the BLS energy prices could subtract two tenths from the May CPI.

— David H. Resler and Gerald Zukowski, Nomura Securities International

* * *

Core inflation is unlikely to accelerate by much if at all in the months ahead as slower economic growth limits any nascent improvement in pricing power. We continue to think that 25bp tightening moves are likely at upcoming FOMC meetings, with this "middle path" proving sufficient to limit any rise in inflation but not being harsh enough to derail the economic expansion.

— Joshua Shapiro, Maria Fiorini Ramirez Inc.

* * *

Intense competitive forces were most likely at work in the 0.1% drop in new auto prices and the 0.6% decline in apparel prices. The struggle to maintain market share in the auto sector is a battle that we expect will continue to be fought on the price front for some time to come. And, although the China textile import quota expired in January, the decline in April decline in apparel prices was the first of note so far this year. We expect this disinflationary force to continue to bear down on apparel prices for some months to come.

— David A. Rosenberg, Merrill Lynch


Economists React to CPI data
May 18, 2005 11:24 a.m.,,SB111642725972836936,00.html

Print Friendly, PDF & Email

What's been said:

Discussions found on the web:
  1. spencer commented on May 19

    I’m not sure what Morgan Stanley was saying on the home owners equivalent rent. Total costs of shelter includes utilities, but the home owners equivalent rent (23.5% of the CPI) is only up 2.3% on a year over year basis. There is no housing bubble acording to the CPI.

    The key will be watching what happens to this component in the third quarter. That is when on a not seasonally adjusted basis the big changes in homeowners rent hits the CPI. Over the other three quarters it does not play a significant role.

    Even afer the zero change in the core rate this month the 3 month and four month rate of change in the core cpi is 2.6% versus 2.2% last year.

    There was nothing in the CPI report to change the Fed judgement that core inflation has moved up to near the upper limit –2.5% to 3.0% –of what the Fed could live with.

  2. Jay S. commented on May 19

    Every time I see Greenspan fly over dumping out baskets of money, I see my neighbors run out and scoop it up and buy housing. Last time I looked my cabinet was full of the “market basket of goods”. Why is oil up “supply and demand” or “Greenspan”?

    When I think about “long and variable lags”, the “unsteady state world economy” and how long it would take the “economy to reach equilibrium” after a change. I conclude maybe this is why economist are still looking for the magic bullet.
    Watch “Squawk Box” at 8:30 AM and they say “you should look at CPI without food and energy (commodities). Watch Kudlow & Co. at 5 PM and he says “look at Commodities”. Watch Forbes he says look at “Gold”. Are they all right or all wrong?

    When the Boss asks me “Why is the price of styrene falling”, some how I can resist saying “Greenspan did it”.

    If you want to know why the market basket of goods is changing “look at the supply and demand for those goods”. If you want to know about the price of money look at the supply and demand for money.

  3. Barry Ritholtz commented on May 19

    Hey Spencer,

    Its a function of the low interest rates — they have increased the ability for those people at the margins to own homes — people who would have otherwise been renters.

    Therefore, low interest rates lower demand and dampen prices for rentals — some 23% of the CPI.

Read this next.

Posted Under