Tuesday, March 01, 2011

MIT's BPP Shows Low, Stable Inflation over Last Yr.

 
According to the Billion Prices Project at MIT, annual U.S. inflation a year ago was running at 2.33% and annual inflation as of yesterday was 2.79%.  The range over the last year has been between 2.20% in November and 2.84% last August.  Based on this record of low and stable inflation over the last year, shouldn't Bernanke's monetary policy get a pretty high letter grade?  A?

Note: Here are some key facts for the BPP: The project started in 2007, and statistics are updated every day based on 5 million individual items in 70 countries; prices are based on apparel, supermarkets, electronics, furniture, real estate, and more.

23 Comments:

At 3/01/2011 1:49 PM, Blogger wwhawkeye said...

A bit early to grade, wouldn't you say?

 
At 3/01/2011 1:55 PM, Blogger morganovich said...

it also shows inflation of roughly twice CPI and gets there using a set of internet goods.

internet good experience far more price pressure due to competition that the economy as a whole.

they also exclude goods like healthcare, education, and fuel.

thus, one would expect the BPP to under-report overall inflation.

take the GDP numbers and use even the BPP figures as a deflator and see what growth looks like.

 
At 3/01/2011 1:57 PM, Blogger Buddy R Pacifico said...

Go to the BPP site and click country choice: Argentina. Inflation lovers will see a very notable recovery in price increase acceleration.

 
At 3/01/2011 2:22 PM, Blogger Benjamin said...

Inlfation, schmaflation.

The Chicken Inflation Littles report inflation every time a price wnywhere peeps up.

Meanwhile, unit labor costs fell by 1.6 percent in 2009 and 1.5 percent in 2010, according to BLS. How do you get inflation with falling labor costs, and all commercial rents evry soft? I just covered about 70 percent of business costs--going down, not up.

Oh, I know. BLS cooks its numbers, and all the major real estate firms--CBRE, Grubb & Ellis etc--are lying when they say commercial space is available for the asking.

I keep hoping for some sustained moderate inflation, but it ain't on the horizon.

The US can easily import goods, services, labor and capital. What we can't import--commercial space--we have gluts of.

You will be waiting for inflation for a long time.

As demand increases, overhead costs get spread over more units. Deflationary.

 
At 3/01/2011 2:37 PM, Blogger Eric said...

Since Bernanke claimed he was "100% certain" he could keep inflation at 2% or less and can change interest rates in 15 minutes, and annual inflation is currently at 2.79% (40% error and trending upward), I don't think an "A" is in order. I'm not sure what getting an "A" for rigging the inflation of our fiat currency would mean in actual cost to consumers either - even neglecting housing, food, energy and services.

 
At 3/01/2011 2:46 PM, Blogger morganovich said...

benji-

you cannot use unit labor cost figures that way.

one of the components used to calculate unit labor costs is productivity. productivity is a function of CPI.

thus, your reasoning is circular.

if CPI is reading too low, productivity will read too high and thus unit labor costs will read too low as inflation is mistaken for output.

 
At 3/01/2011 2:48 PM, Blogger morganovich said...

also note:

the cost of commercial space in the spot market only matters if you are signing a new lease.

most office space is leased on long term contracts with significant penalties for early cancellation and is unaffected by the spot price.

any more metrics you need debunked?

 
At 3/01/2011 2:56 PM, Blogger morganovich said...

"As demand increases, overhead costs get spread over more units. Deflationary."

so now you are arguing that an increase in demand is deflationary?

would you argue then that a drop in unit demand is then inflationary?

what color is the sky on your world?

 
At 3/01/2011 3:11 PM, Blogger Buddy R Pacifico said...

Benji, I hear that the women are beautiful in Argentina and you will enjoy the price increase for your steak dinner, as you dine.

 
At 3/01/2011 3:51 PM, Blogger juandos said...

I've always found it a bit bizzare than when talk of inflation is about there is a very large bit of reality left out of the conversation...

 
At 3/01/2011 4:39 PM, Blogger Benjamin said...

Buddy-

The women are really cute in Japan, and your investment portfolio of stocks and property can fall by 75 percent over 20 years, if you dine there for a really long time.

Also, I have been snubbed by good looking women in whatever country I visit...why would I have any luck in Argentina?

 
At 3/01/2011 4:49 PM, Blogger Eric said...

Bernanke is not maintaining his 100% certainty claim to keep inflation at or below 2%. At 2.79%, he is 40% off (and climbing) despite his claimed ability to change interest rates in 15 minutes, and ignoring housing, energy, food, services, etc.

If a 40% error rate is an "A", what would a "C" look like?

 
At 3/01/2011 5:53 PM, Blogger Benjamin said...

Morgan:

True story: Nice office space in downtown Los Angeles in 1979 was $3 a square foot, per month.

Today? Same price.

Commercial space is very cheap today, whether retail, office or industrial. Leases don't turn over every year, but they do on a rolling level, and sometimes tenants re-negotiate leases mid-contract to get better terms.

It is true as output rises, unit costs go down, due to lower per unit overhead costs. Having run a small furniture factory, I can attest to this personally.

To be sure, extended increases in demand may lead to inflation--though the USA, able to import goods, labor, services and capital, may take a long, long time to get to demand-pull inflation.

In fact, when was the last bona fide demand-pull USA inflation? 1968?

Frankly, we could dump wheelbarrows on money onto streetcorners in America and still not get much inflation. And I wish we would.

 
At 3/01/2011 7:01 PM, Blogger morganovich said...

"Commercial space is very cheap today, whether retail, office or industrial. Leases don't turn over every year, but they do on a rolling level, and sometimes tenants re-negotiate leases mid-contract to get better terms."

most commercial leases are 5-7 years. sure, you can get a great lease right now, but that's precisely because nobody wants one.

i look at the financial of dozens of companies a week. i have yet to see one get a meaningful operating profit boost from a better lease in this downturn.

landlords do not renegotiate leases when prices are below the contract rate and demand is sparse.

you are now changing your story and saying that increased production yields lower unit costs, which is true to a point (though flips over again if you run into the need to do things like pay overtime).

your original claim was that demand increases led to deflation, which is clearly untrue.

when was the last demand driven price inflation we saw? did you miss the housing bubble?

how about current prices for all manner of commodities?

how about organic foods? supply there is going up, but not nearly as fast as demand so prices are way up.

there are hundreds of examples.

the ISM index just showed a price rise that annualized to over 6%.

january nominal retail sales were driven entirely by inflation, annualizing at nearly 4% and rising rapidly.

imported oil prices were up 31% last year.

PPI was up 0.8 in jan after being up 0.9, 0.7, 0.6 in dec, nov, sept respectively. that's over 3% inflation in 4 months annualizing to 12.7%.

you are simply choosing to ignore them because you want to believe the BLS is right in the face of overwhelming methodological and unadjusted price data.

 
At 3/01/2011 7:44 PM, Blogger Benjamin said...

Morgan-

Publicly held comapnies are run for the benefit of concentrated management, not diffuse shareholders. It does not surprise me that they do not inform shareholders of lower rents that could be had. Why move out of cushy offices? Indeed, why not have your wife set up a consulting company, and have your landlord pay her and stay in the cushy offices at whatever rent is being paid?

When I asked about demand-pull inflation, I was referring to general inflation. Economists generally point to the late 1960s as an era of demand-pull inflation.

I am sure you know better than most economists, and can set us straight on this, or any other matter.

As ou are reading so many public filings, do you see any companies you like?

 
At 3/02/2011 4:20 AM, Blogger Ron H. said...

This comment has been removed by the author.

 
At 3/02/2011 4:24 AM, Blogger Ron H. said...

"When I asked about demand-pull inflation, I was referring to general inflation. Economists generally point to the late 1960s as an era of demand-pull inflation."

What did MF have to say about demand-pull inflation?

 
At 3/02/2011 12:20 PM, Blogger Junkyard_hawg1985 said...

Mark,

I do have a lot of value for the BPP (thanks for the earlier link that clued me in to it). Calling inflation stable right now is simply not true. The BPP index on the last day of December 2010 was 101.1227. The BPP Index on 2/28/11 was 102.5232. This says we have already had 1.4% inflation in the first two months of the year. Annualized, that is 8.6% inflation. This is a bad start to the year on inflation.

 
At 3/02/2011 2:12 PM, Blogger Benjamin said...

Ron H.

I don't know--he probably said there was too much money in circulation, as the Fed tried to accommodte Vietnam War spending.

 
At 3/02/2011 5:44 PM, Blogger Ron H. said...

Benji

"I don't know--he probably said there was too much money in circulation, as the Fed tried to accommodte Vietnam War spending."

I'm shocked that you, who frequently appeals to MF as an authority, and for quotes aren't familiar with one of his most famous.

"inflation is always and everywhere a monetary phenomenon."

As a monetarist, he didn't believe that demand pull inflation existed. It's all about the money supply.

 
At 3/03/2011 1:40 PM, Blogger morganovich said...

b-

one of the most popular questions on conference calls for the last 8 quarters or so has been "what are you doing to cut costs"?

if "reducing rent" was a significant part of it, we'd be hearing about it.

if, as you argue, companies are not cutting their rents because of management cupidity, doesn't that still invalidate your whole argument about the rents being deflationary?

it would only matter if they were actually doing it.

 
At 3/05/2011 10:39 PM, Blogger VangelV said...

take the GDP numbers and use even the BPP figures as a deflator and see what growth looks like.

Come now. We can't let reality intervene now.

 
At 3/05/2011 10:42 PM, Blogger VangelV said...

You will be waiting for inflation for a long time.

Don't you eat or buy gasoline? Don't you look at the money supply?

 

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