More “Tame” Inflation



Won’t someone please fire these lazy headline writers?

Its amazing to read these headers on inflation, which are then belied by the underlying data. As the BLS table above should make clear to even the most starry-eyed fan of Alan Greenspan, even the official inflation data remains elevated.

The NYT’s headline AND reporting was the worst of the entire crowd:   

Inflation Was Tame in October

Inflation remains contained despite high oil prices and a record low dollar, a government report showed yesterday, offering some reassurance to the Federal Reserve as it considers whether to lower interest rates again at its meeting next month.

But economists warned that sharp increases in food and energy costs will weigh on consumers in the coming months, putting a damper on spending in other parts of the economy.

Compare that headline with these:

CPI Rise Yet Another Headwind For Retailers Forbes
Pace of consumer inflation quickens
Chicago Tribune
US Economy: Energy-Led Price Gains May Restrain Fed Bloomberg
Rising gas prices push up inflation AP
US inflation fears knock stocks BBC News

Partial credit goes to the Journal headline writer trying to convey the most info in their title:

Consumer Prices Grow Moderately As Low Housing Costs Offset Energy Wall Street Journal

Let’s look at the actual data:

Headline CPI grew 0.3% over the past month, the same as
September. The core index (excluding food and energy), rose 0.2% for the fifth straight month. Annualized, that’s 3.7% and 2.2% (ignore the rounding).

At 2.2% gains year over year, Core
inflation is above the Fed’s target rate.

Starbucks (SBUX) was the latest company to feel the pinch of inflation: Rising wholesale prices forced the world’s largest chain of coffee shops to raise drink prices. This led to the first ever decline in visits, and a lowered profit and
sales forecast.

Starbucks, up until recently, very much a stock darling, has seen their share price tumble by a third this year.

As we have repeatedly stated, there is no free lunch. When cyou drop rates as low as we have, you ignite price increases.

Expect to see more problems like these. Firms that have been absorbing their input cost increases can no longer do so. When they finally pass along these price increases, pinched customers have no choice but to cut back . . .   




Inflation Was Tame in October
NYT, November 16, 2007

Starbucks Turns to TV In Bid to Boost Results    
WSJ, November 16, 2007

CPI Rise Yet Another Headwind For Retailers
Andrew Farrell
Forbes, 11.15.07, 10:20 PM ET

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What's been said:

Discussions found on the web:
  1. Bill King commented on Nov 16

    Hedonic adjustments, particularly on consumer electronics and PCs keep generating a fraudulent CPI.

    For October, in its CPI-W (wage earners) the BLS has ‘video & audio’ declining 0.6%; PCs are down 9.5%, which helps produce a 12.3% decline in ‘information ex-telephone’.

  2. blam commented on Nov 16

    The dangers of a maleable US press go far beyond inflation data. I bet they could even get an idiot son elected president or convince us to attack a sovereign government without sufficient provocation.

    The move by the head of the FCC to allow even greater concentration and cross ownership of news outlets sends chills down my spine. Michael Powell did a lifetime of damage to the press in this country. Pretty soon the press will help the gov sell the kind of creeping surveillance that the English sheeple are busy swallowing. Hell, they allready are.

  3. justin commented on Nov 16

    Do the statisticians include, (or take into account), “how often” one buys the item over a “unit” of time? I mean one has to account for the percentage of total income spent – housing 3/5, clothing 1/10, etc…. For most people housing is a one time event, whereas buying milk happens often, (not to mention toilet paper). Do they break it down into how much our society spends on each item over a given year on average?

    Go Bears! And I don’t mean the Chicago Bears…the Bulls have ruin the economy long enough; like always the Bears need to come in and clean things up.

  4. Karl Smith commented on Nov 16

    “Do stastiticians include how often one buys the item”

    No. Its how overall prices are rising. Obviously if you are in he market for housing today you are facing historically high costs, where if you are trying to clothe a 3rd grader you are experiencing historically low costs.

    To compensate for the huge housing bias the BLS looks at rents rather purchase prices. In the long run they should track one another closely though changes in financing costs and expected future rents can move housing a lot faster.

  5. BettinaZ commented on Nov 16

    I find it interesting that apparel is actually showing price decreases. What no one is noting is that there is indeed a change in QUALITY in an effort to keep prices down. This year I have noticed a significant decline in the quality of fabrics used by everyone from the Gap for jeans (their jeans are much thinner and flimsier than the jeans I bought 3 years ago, and the price has gone from $50 to $70), to high end designers like Armani who are now using a lot of polyester in their fabric blends. If you do a real apples-apples comparison based on fabric content, you will see a MAJOR increase in apparel prices.

  6. Black swan commented on Nov 16

    A propos umiarkowanej inflacji

    Maluśkie odwołanie do BigPicture , czyli jednego z blogów, które najczęściej czytam. Autora, poodbnie

  7. Black swan commented on Nov 16

    A propos umiarkowanej inflacji

    Maluśkie odwołanie do BigPicture , czyli jednego z blogów, które najczęściej czytam. Autora, podobnie

  8. jason commented on Nov 16

    Don’t be too quick to attribute SBUX problems to inflation. Do you think it might have something to do with McDonalds? Micky D’s rolls out premium coffee, iced coffee and now (in select stores) lattes, etc. I suspect this is just the beginning of SBUX troubles and it has little to do with costs…

  9. Lawrence Tureaud commented on Nov 16

    Inflation, much like the Ravenous Bugblatter Beast of Traal, can’t hurt you if you wrap a towel around your head so you can’t see it.

  10. wnsrfr commented on Nov 16

    Here is an interesting inflation anecdote. I ordered a laptop from Dell for my college-bound kid this summer. I had worked the coupons and offers into a great price.

    My order was subsequently delayed numerous times, at the last second, due to “color” but when I tried to reorder in black the exact same configuration (60 days after initial order), the price was $250 higher. The last time my order was delayed, 2 weeks before classes were to start, Dell was actually going to automatically cancel the order UNLESS I CALLED THEM… I ended-up canceling, somewhat with gusto, over the phone, and then buying similar config from HP/Circuit City.

    Now, recently, I ordered a flat-panel monitor for my biz from Best Buy online, got a great price (a great deal!) but now, mysteriously, am on indefinite backorder. Same monitor is now 20% higher if I ordered it today…

    I suspect these online retailers are just cancelling sales when inflation eats too heavily into their margins. Kind of a new no-loss loss-leader pricing strategy…

  11. lurker commented on Nov 16

    Housing a one-time event? Huh? You paid cash upfront? Rent or Mortgage it is a monthly event.

  12. zao commented on Nov 16

    Nov. 16 (Bloomberg) — Joseph Stiglitz, a Nobel-prize winning economist, said the U.S. economy risks tumbling into recession because of the subprime crisis and a “mess” left by former Federal Reserve Chairman Alan Greenspan.

    “I’m very pessimistic,” Stiglitz said in an interview in London today. “Alan Greenspan really made a mess of all this. He pushed out too much liquidity at the wrong time. He supported the tax cut in 2001, which is the beginning of these problems. He encouraged people to take out variable-rate mortgages.”

    Kroszner on the tape saying no more rate cuts. The stock market is screwed if the Fed takes its first hard stance in 20 years.

  13. gunthestops commented on Nov 16

    Sorry, but I have a rant this morning—-Kudlow is such a jackass, there is hardly anything he has been right about, oil, gold, housing, credit, the war—what a track record !!! He gets on CNBC this AM and spews out his moronic crap as if knows what he’s talking about.

    First the republicans had 6 years to fix the AMT and did nothing.

    The republicans in that same 6 years became the biggest spenders in the history of the world—3 trillion dollars added to the national debt.

    Kudlow is advocating fixing the AMT and not paying for it—just add it to the deficit. That is his standard way to pay for all tax cuts— loot the treasury, and have some future generation pay for it.

    This is one of the main problems with the dollar—our national debt keeps going up over 500 billion dollars a year (now at around 9.1 trillion) and republicans have no intention of paying for it—right now it looks like we are trying to inflate the debt away—if that does not work default will be the next trick they can play. The world has been watching us loot the treasury to pay for tax cuts—no wonder the dollar is in the tank!!!

  14. zao commented on Nov 16

    on reading the speech, Kroszner is less hawkish than the headlines suggest.

    1) The whole speech pretty much is devoted to analyzing growth risks.
    2) Two measly paragraphs highlight inflation environment and concludes with a sanguine outlook – expectations will remain contained. Core is fine.
    3) Does not mention how much commodity prices have gone up and dollar down as a result of Fed cuts (aka, it is not just imported inflation that results from falling dollar).

    My conclusion – forget the jawboning. this is what the Fed did in 2000. worried about inflation? that is what they say. I expect them to cut rates. Forget what they say, just look at what they do.

  15. Winston Munn commented on Nov 16

    Yeah, but today Paulson said the U.S. had a strong dollar policy – so we got that going for us.

  16. michael schumacher commented on Nov 16

    Gunga….gunga la gunga (or whatever it was)

    I’ll take total consciousness instead of ANYTHING uttered by Paulsen…


  17. The Big Picture commented on Nov 16

    Shipping to Lattes: The Problem of Higher Prices

    Earlier this morning, we noted Starbucks’ (SBUX) inflation woes. When I wrote Expect to see more problems like these, I didn’t mean within an hour or two: FedEx (FDX) dropped the bomb that slowing growth and higher energy costs put the squeeze on profi…

  18. doug commented on Nov 16

    Can anyone direct me to any research or commentary on the effect of dollarization of foreign economies on domestic inflation? A few Latin American countries are explicitly dollarized and some Chinese banks will conduct foreign lending in dollars. Shouldn’t it be true that to the extent rate cuts and a mushrooming money supply actually gets spread over a growing or even mushrooming base of economic activity, the inflationary effect is muted?

  19. beca commented on Nov 16

    I used to drink Starbucks daily. After Seattle, Vancouver was the second city they moved into. Now, they’ve saturated the market.

    I have since discovered many newer independent cafes that make much better espresso drinks. Now, Starbucks tastes like crap to me.

    Many of my friends have discovered the same thing. Isn’t competition great?

    Starbucks needs to improve their product. They’re way too corporate, packaged and low-wage driven to adapt though.

  20. Ironman commented on Nov 16

    The top-line inflation numbers do look bad, although I’ll note that the CPI index was remarkably low in October 2006 compared to the months around it – I would anticipate that you’ll see a decline in this figure in upcoming months.

    Here’s something better for y’all to get worked up about: S&P revised September 2007’s reported earnings per share data for the S&P 500 downward by 8% from where they had anticipated it would be just last month. They also are now anticipating that earnings will be down for the year as well.

  21. Al Czervik commented on Nov 16

    Anybody else stop by their local bakery lately and see a sign like this taped to the display case . . .

    Due to significant increases in the price of our ingredients, we have been forced to raise our prices. We apologize for the inconvenience.“?

    The increase in the few items I bought seemed to be about 7-10%.

    Oh, and I got a haircut too. Was $24 for years. Now $28 (+16%).

    Meanwhile, I’ve got my 84 year old mother (who likes to go the bakery) bitching to me about her bullshit COLA from SS.

  22. muckdog commented on Nov 16

    SBUX may also be feeling the pinch of competition. How much are they charging these days for an 800-calorie cup of coffee?

    The hike in minimum wages this year also affected the SBUX (and other retailers), as they’ve had to pass along the hike to consumers or eat it in their profits. Wage inflation!

  23. Bob A commented on Nov 16

    MCD just mailed households and businesses in my town coupons for multiple free coffee beverages. But MCD can’t and won’t match SBUX for number of locations anytime soon though.

  24. Michael Donnelly commented on Nov 16

    Their ought to be a 90% inflation rate, strip out the 10% that occurs only every so many years. In other words take out housing, you don’t buy a new house every year, take out autos ditto, and take out major appliances.

    The remainder is the inflation we all experience every single day.

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