Inflation? What Inflation?

Yesterday, I pondered the question of how those who work on Wall Street have managed to deny the existence of inflation for all this time.

Today, the inflation issue reared is head, as CPI prces jumped 0.6%, much higher than expected by Wall Street’s Candides.

Who are Inflation’s heros and goats? Who has been dead wrong about rising prices and the decreasing value of money?

I’ll nominate Brian Wesbury as one of the few mainstream economists who has been dead right on inflation. Larry Kudlow, who was veering into the inflation goat herd, last week resurrected himself, joining us inflation realists.

The goats? I’ll let you nominate your faves in comments . . . 

Here’s the latest CPI data, via WSJ:

U.S. consumer prices grew at a faster pace last month as energy prices jumped,
while consumer prices excluding energy rose more than expected. April consumer prices increased by a seasonally adjusted 0.6%,
after rising 0.4% in March, the Labor Department said. Core consumer prices,
which exclude food and energy items, grew 0.3% in April, matching a 0.3% rise
the previous month.

Overall consumer prices were 3.5% higher than a year earlier.
Core consumer prices grew 2.3% in the 12 months ended April, up from the
12-month increase of 2.1% in March.

The Labor Department’s consumer-price report showed April energy
prices climbed 3.9% from March and 17.8% from April a year ago. Gasoline prices
last month increased 8.8%. Electricity prices rose 0.3%. Natural gas prices fell
5.2%. Food prices were reported unchanged in April.

Housing prices, which account for about 42% of the overall index,
edged up 0.1% in April. Transportation prices increased 2.4% last month.
Airfares rose 1.6%, registering their sharpest gain since July 2005. Prices for
new vehicles dipped 0.1%.

Medical care prices increased 0.4%, while education and
communication prices grew 0.3%. Clothing prices were up 0.6%.


Consumer Prices Jump 0.6%, Stoking Inflation Concerns
WSJ, May 17, 2006 9:13 a.m.

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What's been said:

Discussions found on the web:
  1. Steve Goulet commented on May 17

    Hmmm. Gas prices go to 3 bucks and core CPI is on the rise. What a surprise. Denial is an amazing thing to behold, isn’t it?

  2. cm commented on May 17

    But then I’m getting the impression that the local grocery chains are having substantially more sales actions of late. Nominal prices are still increasing overall though, albeit in my opinion at a slower pace.

    Maybe the sales are a seasonal thing, I have not been tracking this scientifically.

  3. vf commented on May 17

    Steven Stanley at Greenwich Capital has been dead on as well… he was calling for 5.5% when all thought they would stop at 4.5%

  4. gmf commented on May 17

    cm – just last week my wife made the comment that the local markets in our area are not having any good sales of late. I chalked that up to high transport costs.

  5. C commented on May 17

    My nomiation for inflation goat: Bob Brinker

  6. royce commented on May 17

    Could we just be seeing the normal business cycle emerging from hazy glow globalization put on it? Like, maybe we’re past the point where cheap chinese workers and Asian bankers can stop rising interest rates and wash out the effects of high commodity demand.

  7. B commented on May 17

    Want to squelch inflation? Triple the margin requirements on the commodity exchanges. You’ll see them collapse like paper tigers. Poof! No more inflation. You don’t need to crater the economy with higher and higher rates. Fix the problem. Speculation. IMO.

  8. econjohn commented on May 17

    Housing prices, which account for about 42% of the overall index, edged up 0.1% in April.

    Well, that’s a bit misleading…

  9. me2 commented on May 17

    I agree, B !

  10. jkw commented on May 17

    Housing prices for the CPI are not related to house prices. They are based on something that vaguely resembles rent. I believe they take a survey and ask people how much they think the rent would be on their house rather than using real rents. Maybe it’s a combination of the two.

  11. B commented on May 17

    I wish I could claim that as an original thought even though it is so simple but I heard a very well informed Congressman jabbering about raising margin requirements. I thought, wow, so simple but so effective.

    Inflation mongers need to give it a rest IMO. If the commodities bubble pops where the hell is inflation? In collapsing home prices? In bankruptcy filings? In massive layoffs across the housing related sectors? There is no historical precedence for commodities to continue rising beyond the business cycle. Demand will crater at come point. Let natural forces take hold in commodities or put a noose on speculation. Rates are high enough to cause enough trouble in other parts of the economy without doing what the Fed does every single stinking time. Which is going way too far and causing a mess. I tend to think that might already be the case but only time will tell.

    There is simply no doubt there is alot of inflation. But, some inflation is to be expected. Abnormal inflation is caused by input costs that are likely unsustainable. So, fighting the inflation ghost could result in creating a deflationary mess across every asset class from equities, houses, commodities, etc. When commodities crumble, or collapse, the equity markets will likely go with it as they did in every other commodity bubble thus causing a behavioral shift in the consumer. It is self fulfilling and will cause a slow down as the consumer experiences a WWF Smackdown of a housing mess, their 401Ks crumbling, higher property taxes, higher credit interest and jobs cratering in the housing related sectors soon to be followed by job losses in other sectors as the dominos fall. This may not happen but it surely has a higher odds of happening if they keep chasing the commodity inflation ghost by raising rates more and more. We already are likely on the precipice of a consumer shutting down.

  12. The Nattering Naybob commented on May 17


    Good read my man and keep pushing against the “benign” inflation BS.

    The “real” inflation rate can be measured in two actual “guvmint” stats.

    1. The CPI-U or CPI-W

    2. The PCE Table 8: PCE Price Index Quarterly % change YOY.

    Both are SMOKIN at 11.5% to 12% annual. Its all there in black and white, just one problem, people are so poor, they can’t even pay attention…. rim shot…

    Keep fighting the good fight.

  13. jkw commented on May 17

    Who sets the margin requirements on futures? Is it the SEC, the exchange, or some other group?

    As far as I can tell, margins are currently set so that you will get a margin call before anybody else loses money as a result of you not being able to cover your obligations. For an exchange, that is the most reasonable level to set them at. Even the SEC probably has little incentive to set them higher than that.

    Some other group needs to be given the authority to do something about speculative excesses. Someone who has an interest in keeping the economy stable and doesn’t care how badly they hurt speculators. The federal reserve is one possibility, but maybe there is a better group to give that authority to.

  14. howard commented on May 17

    econjohn, jkw: the notion in the cpi is that your “cost” of housing is the rental equivalent for the property you own. everything else, as far as the cpi is concerned, is investment (or speculation).

    ergo, the cpi has benefitted in recent years from this approach (which is not new, and to which i am not attributing suspicious motives). however, a variety of anecdotal evidence (basically, newspaper reports of rising rents) suggest to me that even as the housing market cools some, the rental market will be heating up a little, and therefore the cpi will get a further unexpected goose….

  15. D. commented on May 17

    Well 6 months ago my MIL confirmed there was inflation. Her husband has been giving her a weekly allowance forever. It’s been the same amount forever. But in the last year she hasn’t been able to keep some cash for herself like she used to. And her shopping list hasn’t changed.

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