Chart of the Week: Yr/Yr Change CPI with 12 month moving average

Market technician John Roque has, for quite some time now,  not believed the Fed would be pausing anytime soon. His chart below shows the year/year % change in the CPI. What is significant about it is that four of the prior five times this indicator has moved above the average (3.85%) it has worked to, at least, the 6% area. Inflation doesn’t usually peak until the 12-month moving average (darker line) rolls over. That hasn’t happened yet, implying inflation has more to run.


Yr/Yr Change CPI with 12 month moving average


Source: John Roque, Natexis Bleichroeder


Roque his fond of saying that “pause is a button on your DVD player and not an option for the Fed because we feel inflation is going higher than you expect.”


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Quote of the Day

"The power of accurate observation is commonly called cynicism by those who have not got it."  –George Bernard Shaw (1856-1950)

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  1. James commented on Jun 21

    I would lend more credence to ECRI’s forecasting than a single linear measure like Mr. Roque’s. I love his work, but ECRI’s credibility on forecasting CPI is second to none and they are now looking a potential peak over the next couple of quarters. Of course, that means that the numbers will be ugly over the next few months and the Fed will likely have to raise rates higher than they prefer for political reasons. And people wonder why the Fed almost always overshoots!

  2. Ned commented on Jun 21

    Also for political reasons, the Fed does not want to engineer a slump right before the elections. So I figure they will talk hawk but walk lovey dovey. Makes me remember that funny little chicken hawk cartoon vs. the giant rooster. We can always keep an eye on M3, ohhhhh, wait a second, oh well… interesting times.

  3. Bob A commented on Jun 21

    Cynicism is next to godliness.

  4. B commented on Jun 21

    Let’s see if oil follows industrial commodities. I think the boys in the oil pits are about to get their ass handed to them. I wouldn’t trade it but if they do, are we going to get a large equity rally? Hmmm…

    From what I’m seeing, it looks like the cash market is trying to push the futures market in equities today. The bulls have got to hold here because everything is at a huge tipping point on nearly every chart including the spx, nas, nds, wtic, hg, etc.

    As for the Fed “engineering”, since when has the Fed been able to control the economy? They gonna buy all of those houses in these inventory explosions? Gonna give me free gas? Pay my Visa bill? Or my ballooning property taxes? How about the Chinese economy. Are they going to control that too? If they could control the economy we’d all be millionaires.

  5. me commented on Jun 21

    I wanted to point out Don Ratajczak who founded the forecasting center at Georgia State. He retiered and now is a consultant. I see he is number two.

    “March 27, 2006’s Chief Economist is ranked a top forecaster for three years straight!

    Third-place winner Timothy Rogers, chief economist at…is the only person who has been in the top 10 all three years…
    Here is the complete list of top forecasters, with their current predictions for the Federal Reserve’s target for short-term interest rates at the end of 2006:

    Allen Sinai, president of Decision Economics. 5.5%.
    Don Ratajczak, consulting economist, Morgan Keegan. 5.0%.
    Timothy Rogers, in Boston. 5.0%.
    Christopher Rupkey, sr. financial analyst, Bank of Tokyo-Mitsubishi 5.5%.
    Maria Fiorini Ramirez, CEO, Maria Fiorini Ramirez Inc. 5.0%. ”

    (BR: Hmmmm — Makes 5.25 look like the average

  6. Michael C. commented on Jun 21

    Off topic…

    Does anyone know if/why is down? I haven’t been able to access it for a few days, just wondering if it’s the same for others.

  7. qw commented on Jun 21

    It appears that 3.85 and 6% were arbitrarily chosen to make the results fit the premise. 3.85 appears to have been chosen because of the touches in 57 & 67 that didn’t cross that line and % is chosen because of the peaks in 70 and 91. It may be valid but it does appear to be a bit of back fitting the formula.

    Secondly it appears that the chart has already spike to over 4% and then back below the 3.85% line similiar to the one failure of the formula in 84. Wouldn’t that argue that this move has already failed? The chart has never crossed 3.85 and retreated only to turn and go right back over 6% ? The failure in 84 result in 2% by 87 and took until 91 before it peaked at 6 again.

    Also, you said the CPI doesn’t peak until the 12 month rolls over. Thats not quite accurate. On the chart the CPI has always peak a few months prior to the 12 month rolling over. As the CPI peak the 12 month was beginning to decrease its decent as it came up the front side of the roll over. The actual roll over always came a few months later. This is partly due to math of a 12 month average but isn’t that pretty much the pattern that is developing here again too. The CPI seems to have peaked a few months ago and the 12 month trend is decreasing its decent. Potentially as it prepares to roll over.

    I guess I see more proof of the CPI toping here by this chart than of it going to 6%

  8. Billy commented on Jun 21


    Jason is having hardware problems with his sentimentrader site. He sent out a few emails. If you didn’t get them you should make sure he has the correct email address.

    Boy, when his site goes down it really goes down. This isn’t the first time. He optimally needs a backup ready to go, but I bet that is expensive.

  9. Jack commented on Jun 21

    Useless graph IMO. A moving average is not going to determine the rate of inflation.

    You used to have alot more economic insight on The Big Picture, which I miss. I’m not saying some of the historical charts you throw up aren’t interesting, but, I wish you would go back to providing more of your great economic insight.

  10. Michael C. commented on Jun 21

    Love the site, and the great work BR does.

    I can’t wait till the end of the year to see how BR’s outlook will have unfolded.

    Will BR just be inundated with endless press because of his prescient call on the levered economy and housing market?

    Or will it just be another case of pushing out the doom & gloom predictions another quarter, half year, or year(s), because the consumer and housing turns out yet again to be resilient amidst a “not so bad” economy?

  11. Si commented on Jun 21

    Per Ned:-
    Also for political reasons, the Fed does not want to engineer a slump right before the elections. So I figure they will talk hawk but walk lovey dovey.

    Bang on, I hate to be a cynic but find I cannot be anything else with these guys. The Fed seem to only know one way at the moment, juice the damn thing for all its worth. The pressure on them not so slow this Kid on a sugar high economy down will be intense.
    They have an inflation problem but its kind of like global warming, we all know it happening in the inconvenient truth kind of way but nothing….nothing will really be done about it. Or put it another way whatever they can do about it that will not have an effect on the growth they are so obsessed about they will, but thats it.
    I believe that one of the strengths of the mature western (free world) economy was its ability to recess and bounce back in a strong and long lasting way. There is kind of a dependability/strength about that cycle. As I have said before cycles are everywhere.
    I kind of get the feeling the Fed find that a bit inconvenient at the mo and are taking us into a place we really havent been before, and I have to ask myself why?
    Please don’t tell me its the keeping up with the Jones’ effect ie China.
    One more rate hike and we are done, messing around with numbers will take care of the rest.

  12. RB commented on Jun 21

    That was a nice link to the 1893 depression. Are you a closet deflationist?

  13. Bryan commented on Jun 21

    The question is what are the conditions that paved the way for the rates to shoot up to 14%. What happened between 1955 to 1970?

  14. Craig H commented on Jun 22


    Between 55 and 70 we had wars in Korea and Vietnam plus LBJ’s “Great Society”. Lots of spending on both guns and butter. The more things change…

  15. Blissex commented on Jun 23

    But oh man, Barry, this graph is rather misleading: because as you are fond to point out very often, and quite correctly, how the CPI is defined has changed a lot over time… You recently praised the incoming/savings stuff as being rather different:

    «This is not a seasonally adjusted, hedonically altered, absurdly core focused number.»

    But indeed the «seasonally adjusted, hedonically altered, absurdly core focused» CPI in the 1990s and 2000s is not the same CPI as in the 1960s and 1970s.

    What was that cynical and wise guy (Williams from have a look at his CPI graph) saying? Ah here it is:

    «All in all, if you were to peel back changes that were made in CPI going back to the Carter years, you’d see that the CPI would now be 3.5%-4% higher. The difference that it makes is significant: if the same CPI were used today as was used when Jimmy Carter was President, Social Security checks would be 70% higher.»

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