3.4% Inflation is Worst in 5 years

Here’s something that only got minor play this week:  CPI data for December, and the full year were released, and it waren’t purty:

For 2005, inflation rose at the fastest rate since 2,000 — while Personal Income gains failed to keep pace with price  increases.

I’d like to see someone try to spin that positively.

CPI rose 3.4% for the year, despite Consumer Prices declining 0.1% in December, and 0.6% in November. AP noted that this "represented
the first consecutive monthly declines in two years, but both months
were heavily influenced by declines in gasoline and other fuels that
are expected to be reversed in January."

For the full year 2005, Energy prices were up 17.1%, followed by Medical Costs up 4.3%, Housing Prices up 4% and Education 2.4%.

All kinds of Energy went up in price: Gasoline prices were up 16.1 percent, Natural Gas prices jumped by 30.2 percent, and Home Heating Oil was up 27.2 percent. These are huge increases being felt by consumers in their higher heating bills, just about . . . NOW.

This data makes me wonder:  Why do some economists insist on focusing on the core rate? Because volatile food and energy can throw the data off for a month?  With inflation up 3.3% in 2004, and plus 3.4% in 2005, remind me again why we insist on ignoring food and energy?

That makes little sense after 2 consecutive years of significant, broad price increases.

What’s the Fed have to say about this?

Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, stated:  "I think it is too soon to declare that the ‘pass-through risk’ is entirely behind us."


File: Download cpi_2005.pdf


Consumer Price Index Up 3.4 Pct. in 2005
AP, Wednesday, January 18, 2006

Inflation Hit Five-Year High of 3.4% Last Year
Wages Didn’t Keep Up, Labor Department Says
Nell Henderson
Washington Post, Thursday, January 19, 2006; Page D01

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What's been said:

Discussions found on the web:
  1. Idaho_Spud commented on Jan 20

    Barry, it’s very unpatriotic of you to say such things… Whose side are you on anyway?

    If it weren’t for you gadflies pointing out all the warts in the economy, we’d certainly be at Dow 36,000 by now, we would *all* be rich, and none of us would ever have to work again!

    OK, irony mode is off now. The market will ignore it, and focus on something positive. Peter Schiff makes the point quite well this week I think:


  2. Uncle Jack commented on Jan 20

    Barry, aren’t you a dieting walker, like me, in which case the volatile food and energy doesn’t matter?

  3. 23 commented on Jan 20

    What exactly is left after you exclude food and energy? Not very much I can think of. Besides occupancy costs (mortgages or rent), what would take up a greater percentage of income than those 2?

  4. alan commented on Jan 20

    Bernanke will tell you that house prices went up, and there is no real estate bubble, ie., workers are being compensated for real wage declines. But what about renters? At least they are not being put in houses they cannot afford with no money down and negative amortization loans that are being bought by Fannie Mae and Freddie Mac and ultimately the foreign central banks.

  5. Scott commented on Jan 20

    Barry, if you include food and fuel prices you obscure how good we have it here. We are all better off than 5 years ago – we can now purchase a $39 DVD player at walmart.

    When it gets cold, we can just throw the damn things in the fireplace to heat up the house.

  6. Algernon commented on Jan 20

    If inflation continues on the trend suggested on this chart, to wit, it comes in at ~4.5% next year, then compression of PE’s would be reasonable & contribute to Barry’s downward forecast.

    I haven’t noticed you focusing on this. The continuing upward movement of commodities certainly implies it. What I would like to see is some sort of worldwide liquidity measurement, as I believe the Chinese, Japanese, Indians, & others have been & are creating a lot of fresh money.

  7. ilsm commented on Jan 20

    Monetarist policy, lowering or raising interest rates to “work on inflation” only matter for things that have some price elasticity.

    Food and energy have very little short term price elasticity therefore, do not affect monetarist view of the world and agendas.

    Or otherwise if we included them we would raise interest rates to stop inflation…………………

  8. Jordan commented on Jan 20

    The gold market has accurately forecasted the coming rise in price inflation

  9. shrey commented on Apr 17


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