Strange Inflation News

CPI gets released this morning at 8:30.

Consensus forecast for September 07 — both the headline number, and the Core — are for +0.2%.

Meanwhile, in one of those weird coincidences, three odd inflation anecdotes crossed my path this week.

Travel: On the LIRR yesterday, officials handed out flyers about the upcoming hearings for price increases, ranging from 8% to 11.1%. Obviously, the cost of fuel is impacting the railroad’s ability to keep its deficit closed — a feat accomplished after the last fare increase, passed 18 months ago.

Food Costs: Domino’s Pizza (DPZ), the nations largest pizza chain,missed on both revenues and earnings yesterday. Why? Let’s go to the company’s CEO: "Unprecedented cost pressures and a weak consumer environment negatively impacted our domestic results in the quarter, which made striking the right balance between increasing prices, while operating in a period of declining traffic, very difficult."

Unprecedented. Cost. Pressures.

The firm noted that higher labor, food and packaging costs, as well as higher interest expenses, were only part of the problem: The company’s own pizza price increases could not implemented fast enough by franchisees to outpace their rising input costs.

That’s right, inflation has been running faster than their ability to print new menus!

Works of Art: No, this isn’t another screed about how high prices are in the Art world. This is a different type of observation. It comes from the What’€™s Offline section of the weekend NYT:

prices for metals are being blamed for an increase in the theft of
sculptures worldwide, Art & Antiques Magazine reports. More than
300 bronze, aluminum and copper sculptures have been registered with
the Art Loss Register, an industry database, since January 2005."

Works of art are being stolen not to be resold them into the
high priced collector’s market, but rather, because the underlying
metal has increased so much in price, they are valuable for the scrap metal alone.


All I can say is, thank goodness inflation is contained! Imagine what would be going on if it were actually elevated!


Domino’s Pizza profit down 55 pct, shares tumble
Aarthi Sivaraman
Reuters, Oct 16 2007

What’s Offline
The Revolt of the Childless
NYT, October 13, 2007

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What's been said:

Discussions found on the web:
  1. Winston Munn commented on Oct 17

    “WASHINGTON (AP) — Come January, the nation’s nearly 50 million Social Security recipients will see the smallest cost-of-living increases in their monthly checks in four years, even though they are paying significantly more for such items as food, energy and medical care.”

    COLA ex reality

  2. Scott Frew commented on Oct 17


    It’s not just here. In fact, given time, inflation may outstrip toxic mortgage-backs as our biggest export. Note Ambrose Evans-Pritchard in the Telegraph today.

    Then note Reuters quoting a strategist talking about India, whose stock market was limit down today, and its central bank US$ purchases: “The central bank must have got tired of pressing the bid button on the dollar all of the time”.

    John Williams’ shadow government statistics estimates of broad money growth hit 14.6% in September, after 13.9% growth in August. Those are the biggest numbers since 1971. As I remember the ’70s, they were not a happy time economically or for the markets. Good thing we’ve got Dr. Bernanke watching over us–I’m sure it’s all going to come out just fine.

  3. Justin commented on Oct 17

    Do you think?

    The talk over on the yahoo QQQQ board is elation…Hmmmm? Why does tech seem to be in a world of its own right now? I read where Intel’s strong numbers was due to vendors over-buying chips. Somewhere things are going to get backed-up terribly.

  4. Yaser Anwar commented on Oct 17


    Just look at the TIPS! They’ve been on a steady up trend.

  5. John commented on Oct 17

    Well, as Barry posted here sometime ago, the Goldman Sachs Commodity Index is zooming along at a pretty good clip. Energy costs are certainly higher than they were a year ago. It seems funny to me (or maybe at this point it shouldn’t any longer) the Financial News Media isn’t mentioning much about OIL being up in the mid 80’s. How long before gasoline prices at the pump catch up??? If last year was any indication one would think $4.00 per gallon gasoline is in the not too distant future (even if Oil corrects back down ot the mid 70’s.).
    On another note if the pullback in construction related jobs is keeping Inflation in check why is this data not showing up in the jobs numbers.
    And are these “increases” in wage growth just showing up in the upper class and scuing the numbers…?

  6. ferd mertz commented on Oct 17

    so who likes bonds? yesterday’s TIC number is somewhat shocking; a negative number indicating capital outflows from foreigners in august. are domestic buyers little old ladies now eating cat food as their interest doesn’t cover human food and hedge funds sitting on a pile of derivatives to cover themselves should reality ever intrude?

  7. Mike commented on Oct 17

    The domino’s pizza example is right on. American consumers have been spending like madmen because of the great deals they have gotten starting with 0% interest for autos. The reason the negative consumer sentiment numbers never correlate to lower sales is that retailers have been able to keep lowering prices thanks to China and low interest rates. As this phase ends, we are likely to enter a period where the consumer finally pulls back given the demographic trends. The fears of inflation are overdone becuase consumers will stop spending and pressure the economy. If the Fed does not overract, inflation will not be the main problem.

  8. Matt M. commented on Oct 17

    DBA (Powershares Ag. ETF) is a nice way to play the inflation mentioned in the article. It’s has pulled back to a nice entry point.

  9. dan in michigan commented on Oct 17

    We have a lot of transient workers in our neighborhood. My neighbor had a $25,000 bronze sculpture in his garden. Poof! Stolen for scrap. It really is happening.

  10. Justin commented on Oct 17

    Amazing: I have been reading since 4 o’clock this morning, (not that I’m a speed reader), and by the time the market opened I had the biggest feeling of gloom, from all that I have read, (except tech)…still I look at my board just a minute ago and it’s greener than the hills of Ireland! Go figure, I guess shit does makes grass grow…

  11. C commented on Oct 17


    A very elementary point, but the mere fact that the CPI/PPI hoax has been carried off for so long raises the previous comps to a point where the stealth standard of living devlaution has occured already but will not get talked about. If core were top become headline, the already higher cost inputs would make that number look benign no? How convenient. if Americans could wean themselves from the credit card for a minute, might I suggest reading about what happened to savings/standard of living etc after the LAtam/Asia devaluations….

    Interesting that the cost of finshed products report last week increased almost five percent and yet the core remained wek. The dominos report is the beginning of comapnies who have cost cut and leverage recapped there way to record earnings over the past few years begin to take it on the chin (margin). Eventually this “oil/ebergy” doesn;t matter anymore will burst through the margin line and that presents a great risk into ’08 EPS.

  12. michael schumacher commented on Oct 17

    So what market making event is going to occur between now and options expiry.??

    That’s what I want to know……

    You know it’s coming.


  13. S commented on Oct 17


    you confuse revenue growth with margin pressure — two sides of the eps coin…if consumers stop spending, as they appear to be doing, doesn’t impact global commodity markets – so we are to believe.

    let’s remember, companies haven’t had pricing power in any way for the past five years or so – that is in everything we care about. The low cost subsidy is what powered the system. That has insulated people from the recognition that their wages are stagnant/declining. Companies used sept 11th downdraft and globalization fears to keep employees thinking “just glad to have job.” The productivity dividend was temporary.

    Now What? pent up inflation will force itself through the system. check the china stats

  14. JJ commented on Oct 17

    If the Fed won’t fight inflation, who will? We are all doomed.

  15. M.W. commented on Oct 17

    I’m new to this blog and just learning what some of this data means, but the thing I know for sure is that in 9/05 when my son was born, a gallon of milk was $2.50 here in Kansas City, Mo. Now it is $4.09.
    Something seriously has gone wrong when milk, bread, and cereal have gone up so much in just two years

  16. Costa commented on Oct 17

    im with you. There has to be some “GREAT NEWS” before Friday

  17. super-anon commented on Oct 17

    If the rising cost of inputs can’t be passed on to the consumer, then they have to come out of earnings. This is part of the reason we’re seeing gas prices hold steady while oil prices soar (there’s ample evidence this is due to speculators, not legitimate demand). Ultimately business has to scale back. But the “hedgies” all get fed in the meantime.

  18. michael schumacher commented on Oct 17

    BTW please tell me why does the fed drop the amount it offers for repos. from over $10-15b and have them not become oversubscribed at all to between $6-7b and have them oversubbed. by 10X…..

    and here comes the layoffs:
    Morgan Stanley lays off 300 traders,bankers

    at least that is what the ticker says…..


  19. Camille commented on Oct 17


    For those of us (me) who don’t understand fed repo offers, could you give a more basic explanation?

  20. Ross commented on Oct 17

    This just in; SS payments set to increase 2.3%!!! When, not if, the the commoners go on the warpath there will be hell to pay. Stagflation is a reality. The Fed is monitizing not only oil price increases ala 1972 but now monitizes losses in securitized debt. Buy hard assets and bury them on your farm.

  21. Bob A commented on Oct 17

    No inflation? Flu shot 2003 $15. Flu shot 2006 $25. Flu shot 2007 $30.

  22. dblwyo commented on Oct 17

    From the anecdotes think I rest my case that PPI is accelerating faster than CPI, and despite benign YOY trends that gap is growing and not being passed down the supply (food) chain. That means tremendous pressures on earnings but isn’t reflected in stock pricing (YET ?).

    On that line of thought the technology outlook is interesting. IBM, Yahoo, had apparently very good news but you have to ask a) how much of that is real growth vs momentum ? And b) what’s the outlook for tech stocks if capital spending is headed down ? And c)is that growth in alleged earnings (ala Fleck) based on real, organic growth in the business ? And operating performance ? Or does it results from buybacks and squeezing the employees and customers, a company’s major “soft” assets ? Fleck’s whole point is that digging down into the real operating performance and indicators would lead you to think the outlook isn’t benign, wouldn’t it ?

    Herb Greenberg had an interesting column on looking at R&D and gross margins which is a partial way to look at but their are deeper questions about how effective the techs are being:

  23. Das Gherkin commented on Oct 17

    Re: Options…I don’t know how to play this game…are you talking upside news, or downside news before expiry.

    I thought Barry’s column yesterday about gamma suggested downside news??

  24. michael schumacher commented on Oct 17

    simply put the Fed offers a cash window for the banks or brokers who exchange assets for cash at a pre-determined rate (usually ALOT lower than you or I can get)and the brokers take that cash and throw it at the market.

    The rub here, for me, is that once that asset is exchanged for cash the FED has no policy or understanding of where that money goes or is used-not entirely true as I think they know exactly what is done with it but just like the policy of the U.S. is a strong dollar we see how truthful that statement is/was. So if you are a broker that has millions of near worthless assets siting in level 3 accounting (cough ,Goldman,Lehman,CITI,BSC,Merril,etc) you can now take those insolvent “assets” and exchange them for cash to use ANY WAY THEY SEE FIT.

    So in essence the Fed is handing over cash for your neighbors boat loan or house loan or any other thing that they can convince the Fed is “worth” something……just not in an open market.

    While it is technically not printing money without backing it up with an asset the value of those assets are in question and will be for a long time to come. Otherwise, why do they need to exchange them for cash??

    The banks/brokers are oversubscribing these repo’s so that when the fed meets in two weeks they can show the need for an additional rate cut. Nevermind that the repo’s were not overdone when the amount offered was in upwards of $10-15B but they all of a sudden are when the FED offers about half the amount starting last week with last Friday’s being the start of overdone by 10x.

    This whole issue is not about credit or the availability of it….it is about protecting the spreads for the banks. Citigroup thought it could roll over it’s assets forever and collect the spread on them (month to month) when that spread began to decrease (August) the alarm bells went off with regards to profit margins. So we had the bailout presented as a credit crunch instead of what it really is.

    So these idiots have made poor decisions and have yet to HAVE to take medicine for it as the Treasurey and Fed will just bail them out at the hint of any “bad” news for them…i.e. diminished margins not credit availability. Credit will ALWAYS be available……for a price. They (banks) are just making sure the spreads they have enjoyed for so long stay that way.

    and we wonder why the market continues to defy reality and gravity….


  25. tree commented on Oct 17

    I read TBP during the week then listen to this radio show called Money Talk with Bob Brinker on Saturday and Sunday and he is quite the cheerleader for the market. Throughout his program he defends the low inflation chant while poking fun of the doom and gloomers who keep supposedly missing out on the bull market. It’s almost like he reads TBP. Anyone else listen to Brinker?

  26. michael schumacher commented on Oct 17

    and for all you people who slammed me for calling Eric Bolling’s mea culpa here a total sham……which it most certainly was

    Go look at FBN


    Family time must have sucked. Doing a disservice for all people who actually WANT to spend time with family…not use it as an excuse to cover your ass.


  27. Bob A commented on Oct 17

    Anyone care to start a pool on which major Homebuilder will be the first to declare bankruptcy? I’ll take SPF

  28. michael schumacher commented on Oct 17


    May be you live in a textbook world but most of us do not. Spare me the link to yet another “how it should be” site.

    You have no idea…..


  29. Das Gherkin commented on Oct 17

    I find FoxBusiness un-watchable, and yes, I noticed Eric Bolling on there yesterday too talking about some stock picking site…he was like a blog reviewer or something.

    It is so bad that I suspect they will steal either Erin Burnett or Maria B from CNBC before the year is over just for the viewers they would gain.

    That Shibani Joshi, though, she really salts my brine.

  30. donna commented on Oct 17

    Inflation ex-inflation is still low! Woo hoo!

  31. anon commented on Oct 17

    Just where did you get the tidbit that Domino’s couldn’t print menus fast enough? Sounds like a convenient excuse. Why would that matter on take-out orders anyway? You’re not making this stuff up are you?

  32. michael schumacher commented on Oct 17

    I did’nt say I watched it for very long……flipping channels produced the siting of Eric “family-man” Bolling.

    He may be a great trader however he could’nt tell the truth about where he was going and used his family as the excuse……

    here’s his latest “gem”

    Yes Mr. Bolling I’m sure the “superfund could put a calming tone on the market and has real upside”

    For whom is the question…….


  33. DP commented on Oct 17

    Inflation datapoints? We don’t need no stinking inflation datapoints…

  34. Strasser commented on Oct 17

    And since there is no inflation ;( ;( we will get an amazing bump in benefits… right!

    “Wednesday October 17, 8:35 AM EDT

    WASHINGTON (AP) — Come January, Social Security benefits for nearly 50 million Americans are going up 2.3 percent, the smallest increase in four years. It will mean an extra $24 per month in the average check, the government announced Wednesday.”

  35. Christopher Laudani commented on Oct 17


    Larry Kudlow told me that pizza eaters are only 0.000000005% of the US economy, so it doesn’t matter.

    If cavier saw these kinds of price increases, then it would make a difference because the rich would be squeezed and there would be less money to trickle down.

  36. michael schumacher commented on Oct 17

    Yet another fund having “issues”

    Money Quote:

    ““We are very pleased with the progress being made to implement a financing or a whole book solution of which we are in advanced negotiations,”

    and then right below it is this gem:

    “The receivers declared an “insolvency event,” Deloitte said. That means the SIV is unable to pay its debts when they are due, according to its prospectus.”

    But remember THEY are pleased…..


  37. DavidB commented on Oct 17

    Domino’s Pizza profit down 55 pct, shares tumble

    Oh no. Could this create a……uhhh…..domino effect

    Couldn’t resist that one

  38. DavidB commented on Oct 17

    That’s right, inflation has been running faster than their ability to print new menus!

    Don’t worry. I understand the discount window will now be allowed to lend liquid paper.

    Now that is odd. It seems private printing presses cannot keep pace with public ones. That gives a whole new meaning to the phrase velocity of money. You’d think that print velocity would travel at the same rate of speed everywhere. That seems to be a violation of physical law somehow(it figures the government would figure out a way to do that)…or at least you’d think that if it were slower somewhere it would be on the government side.

    There’s a nobel for economics in there somewhere.

    Wait a minute. I’ve been thinking about this now for a few minutes and I think I found the balance. When the tax man wants money you have to give it to him immediately but when you want your money from the tax man it slows down by a magnitude of days to weeks and in some cases months(not seasonally adjusting for court cases). Yet, when the fed wants the economy to have money it speeds up but your ability to raise prices can’t keep pace.

    I have it figured now. The high and low speeds cancel each other out and somebody orders pizza.

    Thus we have the domino effect

  39. fred commented on Oct 17

    Camille asked:

    For those of us (me) who don’t understand fed repo offers, could you give a more basic explanation?”

    Camille: MS doesn’t understand repos, among many many other things he doesn’t understand.

    For one thing, repos are overnight loans. Banks get cash from the Fed in exchange for bonds. They must be repaid the very next day; the banks return the cash and get their bonds back. The Fed is NOT accumulating portfolios of worthless boat loans.
    This is about tweaking the levels of cash in the banking system, not about giving brokers trillions to “throw at markets.”
    Barry: You’re going to lose readers if you keep allowing idiots to spew misinformation all over your site. You should say “ciao” to MS and his tin-hat theories.

  40. rex commented on Oct 17

    You completed missed the point of Domino’s warning. It’s not that they can’t print new menus fast enough; it’s that they can’t raise prices very much in a “weak consumer environment.” Their poor performance was related to “lower volumes” and “a period of declining traffic.”
    So it turns out that the Domino’s case proves exactly the opposite of what you thought it did: Domino’s input prices are rising, but Domino’s has NO pricing power to pass those price increases for raw materials along to the consumer. If they raise prices, customers won’t buy. If Domino’s pizzas cost too much, families will just buy the Colonel’s chicken, or open a can of Campbell’s, or open a box of Uncle Ben’s. That’s why Domino’s said in their press release that it was difficult to strike the “right balance” between raising their prices and losing customers.
    This is why all your obsession with commodity prices is so pointless: In today’s competitive environment, the higher prices that companies pay for wheat, corn and gasoline just squeeze profits (and employee wages), they don’t get passed along to consumers (at least, not completely). That’s why consumer inflation is so low. Yes, Barry. Repeat after me: Consumer inflation is low. (But unfortunately, inflation, as low as it is, is still growing faster than wages. That’s the real issue.)

  41. Squeezed commented on Oct 17

    “simply put the Fed offers a cash window for the banks or brokers who exchange assets for cash at a pre-determined rate (usually ALOT lower than you or I can get)and the brokers take that cash and throw it at the market.”

    Fred, could you please explain how the quote above differs substantially from your own explanation of repos. I wait with much anticipation.

    “For one thing, repos are overnight loans.”
    Repros can and do have longer maturities.

    I also agree with you that posters who pretend knowledge while posting utter BS should be called out.


  42. JP commented on Oct 17

    I thought the Dominoe effect was when the Fed purchased those pizzas fow which there is otherwise no market.

  43. Winston Munn commented on Oct 17

    Fred wrote,

    “For one thing, repos are overnight loans. Banks get cash from the Fed in exchange for bonds. They must be repaid the very next day; the banks return the cash and get their bonds back. The Fed is NOT accumulating portfolios of worthless boat loans.”

    Fred and MS:

    I do not wish to butt into an argument but think clarification is needed. First, there are different lengths of repurchase agreements – they are not all overnight. There are 3-day, 7-day, 14-day, etc.

    Second, they are not necessarily pure bonds, as in treasury bonds – agency paper and now even MBS are used as collateral.

    The last point (MBS) is a concern – although they certainly are not accepting boat loans, by accepting MBS they could be accepting some poor quality mortgage loans. At the least, accepting MBS is providing liquidity for an illiquid asset.

    The easiest way to follow this is simply go here:

    And lastly, the purpose is stated by this quote from the New York Fed:

    “To implement monetary policy, short-term repurchase and reverse repurchase agreements are used to temporarily affect the size of the Federal Reserve System’s portfolio and influence day-to-day trading in the federal funds market.”

    The object of repurchase agreements and reverse repurchase agreements is to move the federal funds rates toward the target rate.

    End of story.

  44. DavidB commented on Oct 18

    I thought the Dominoe effect was when the Fed purchased those pizzas fow which there is otherwise no market.

    I’m pretty sure the fed only purchases pizzas for which there is no anchovies

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