Inflation Rate Tame?

Yesterday’s CPI data (for April) was a stiff 0.5%, or 3.5% ona year over year basis. Yet the markets chose to focus on the flat core growth rate of 0.0%, or 2.2% on a year over year basis.

I suspect that CPI was an excuse for the rally, and not the underlying cause. The data is simply  belied by the ordinary consumers’ daily experiences. Prices have been going up steadily, especially in areas not measured by the Department of Labor.

This chart shows both CPI and its smoothed out "Core" rate as in a recent uptrend. 

click for larger graphic

Briefing_cpi observes:

•     Y-o-y growth returns to Nov’s four year high of 3.5%.
•     But the core (ex-food and energy) fell to 2.2% yoy fom Feb’s 2 1/2 year high of 2.4%.
•     Flat core growth tremendously encouraging after the bloated
gains of the prior two months — 3 month average of trend 0.2%.
•     Energy prices (4.5%, 17% yoy) provided the lift along with an 0.7% jump in food prices.
•     Hotel/lodging -1.2% after 5% two month gain.  Medical care just
0.2% in April as vehicles were flat and apparel prices fell -0.6%.
•     Service costs at 3.2% yoy.  Core commodity costs at 0.5% yoy as energy costs are up 17%.


Here’s the WSJ’s take:

Wsj_05182005085202"Higher prices at the pump continued to force consumer prices higher last month, the government reported Wednesday, but there were signs that inflation pressures were moderating elsewhere in the economy.

The Labor Department said the consumer-price index for April rose 0.5%, driven largely by a 4.5% jump in energy prices — the biggest gain in that category since a 5.7% jump in March 2003. Food prices also increased smartly, jumping 0.7% after a 0.2% gain in March. But excluding those often-volatile categories, consumer prices were unchanged last month.

In annual terms, the inflation picture was mixed. Overall consumer prices rose 3.5%, higher than the 3.1% gain in March, but core consumer prices rose 2.2%, slower than March’s 2.3% gain. Thus far in 2005, CPI has increased at a seasonally adjusted annual rate of 4.8%; consumer prices climbed 3.3% in 2004.

Energy prices have been a culprit in pushing inflation gauges higher for many months. In April’s CPI report, gasoline prices climbed 6.4% and natural-gas prices increased 5.6%. But crude-oil futures have sunk from highs of around $57 a barrel early last month to trade around $48 a barrel in recent days. That slide is likely to hold down petroleum prices in the future, economists said.



Energy Costs Fan Inflation;  Other Price Pressures Ease

April Consumer Prices Rose 0.5%, But ‘Core’ Index Was Unchanged
May 18, 2005 12:31 p.m.,,SB111641799105836833,00.html

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  1. Chad K commented on May 19

    It would be extremely interesting to have a tool in which you could put all of your personal monthy budget or expenditures… and get some output on whether or not inflation is truely effecting you.

    Fortunately (and unfortunately), over half my income goes to pay for debt (read: mortgage, 2 autos (no cc debt)). Without the CC debt I had looming at a younger age, my montly cost for these items is fairly fixed. It also seems that the increased property tax I pay on my house is made up for in decreased tax on my cars.

    I currently drive/walk 1.2 miles to work. Gas prices have no [direct] effect on me. Hotel prices have no [direct] effect on me.

    All of my lines to these big increases lately, including gas, hotels, etc, lead me to only indirect links. Obviously the grocery store will compensate for the raised rates from the food distributors… and my boss might feel minor pressure from higher hotel bills when I travel… but in the end, the only thing I see that’s had any effect [directly] on me is the price of Milk. But then, if I head to Costco or Sam’s it’s unchanged from what I was paying a year ago.

    Looking back… the largest increase in any of my expenses was the cable/net/phone bill… but it’s still cheaper than 3 years ago (competition dropped prices dramatically at that time)

    I’m thinking that my personal inflation rate is closer to 0% over the past year. Possibly 1% over the past 2.

    Anyone want to build this software?

  2. marku commented on May 19

    My favorite cpi indicitor is the Microbrew Inflation Index. Over the past 3 years or so the price of a decent sixer of microbrew has advanced from $5.99 to $7.99. More recently prices of health care and housing have skyrocketed. The sticker shock for heath care coverage last year through my employer was substantial.

    The only thing holding inflation down is the deflation we import fom China, and that has the unpleasant side effect of destroying the productive side of the US economy. Hence interest rates must be below historic levels to keep the economy on life support.

    So we slide along a knife edge, balanced between inflation and deflation, while getting the deleterious effects of both.

  3. fatbear commented on May 19

    Chad K –

    Interesting re your experience, but not borne out by mine. I also live walking distance from home, and I see quite a few costs rising:

    1) RE taxes up
    2) NY Times price up
    3) Starbucks raised my daily coffee 7%
    4) Local greasy spoon, where I have eaten once a week the same lunch for 6 years – price up ~8%
    5) FT cover price up 50%
    6) Household insurance up
    7) Monthly Garage for car up
    8) Health insurer increased my co-pay on drugs & MDs
    9) nevertheless, Health insurance up

    Although not at same rate, sorta what I experienced in the early ’80’s – every time I turn around, something else has gone up. What hasn’t, of course, is electronics, mass market clothing, and non-essential consumer goods – all of which are way overweight in the index as far as a NYC dweller is concerned.

  4. fatbear commented on May 19

    also live walking distance from home should’ve been – also live walking distance from work

    damn little fingers won’t do what I tellt them

  5. Chad K commented on May 19

    Good for me that I don’t:

    1) pay taxes….
    actually i pay less in taxes due to having more children than in previous years. go tax credit.

    2) Have subscriptions to anything.

    3) Consume caffiene since that last kidney stone was determined to have been caused by it.

    4) Order anywhere off the dollar menu (except in special occasions). Chinese restaurants do charge quite a bit more than they used to in the past, but I won’t argue since the quality has risen dramatically in my area.

    5) FT?

    6) Live in an area of my city where insurance rates have gone up. Oddly my rates are down from 3 years ago… and somewhere inbetween a hail-storm got me a new roof… you’d think it would have gone up after that.

    7) Pay for parking. House, garage… work, free.

    8) Ahh yes, health insurance. Well, yes, I pay much more due to children. Though, the new job I took last year now covers a greater percentage, so I end up paying less… though, in the year I’ve been here, they did raise what we pay by 10% (now $71/month for me, wife, 3 kids [20/50/100 copay] 3k max out of pocket)

    This kind of stuff definately needs a nifty app to plug into quicken or some such thing to track personal inflation. Sounds like some people get hit much harder.

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