Monday, March 26, 2012

BPP@MIT Annual Inflation Lowest In 2 Years: 2.2%

The Billion Prices Project @ MIT just released daily online price index data through March 6, and annual inflation rates for the last two years are displayed in the chart above.  According to this real-time information of major inflation trends in the U.S., inflationary pressures have been subsiding for the last six months, and the current annualized inflation rate of about 2.2% through early March is the lowest rate in at least two years.  That's almost a full percent below the 3% annual rate of inflation from the CPI (NSA), providing support to the notion that the BLS measure of consumer prices overstates inflation by a full percentage point.   

13 Comments:

At 3/26/2012 7:56 PM, Blogger VangelV said...

First of all, 2.2% is not exactly a low inflation rate. Second of all, it is not reflective of the real inflation rate, which is actually much larger than the reported 3% CPI rate. Let us note that people do not do most of their shopping using the internet. Most actually go to stores and spend a great deal of their income on things like gasoline, food, insurance, tuition, shelter and health care. Sadly, you fail to report on the effect of those price changes. For the record, I think that these are much more reflective of what is going on:

Gas prices already closing in on last year's high

The FAO’s World Food Price Index (FAOFOODI) rallied 20 percent in 2009 and a further 26 percent in 2010 as the global economy recovered from recession. The gauge, which was at 215.27 last month, reached a record 237.92 in February last year. A decade ago, it was at 88.3, according to data tracked by Bloomberg.

“Our third-quarter results reflect strong worldwide sales growth for our business, but the 10-11 percent input cost inflation we’re experiencing this year pressured our margins. In the fourth quarter, we expect to generate continued good sales momentum and we anticipate that gross margin contraction will ease somewhat. This should result in renewed earnings growth as we wrap up 2012 and move into the new fiscal year.”

Sorry Mark but you can't keep ignoring the actual price increases, the true inflation rate, and declines in economic activity and still try to retain your credibility. Anyone who looks at the data carefully can see exactly what is going on. Anyone who believes the false claims deserves what they get.

 
At 3/26/2012 8:05 PM, Blogger Mark J. Perry said...

Average inflation since 1960 has been 4%, so the BPP@MIT annual rate is close to half of the long-term average.

As long as McDonald's maintains its same Dollar Menu for years and years at a time, with a McDouble for $1, there really can't be too much inflation.

 
At 3/26/2012 8:51 PM, Blogger jorod said...

Wait til everyone factors in the latest fuel increases.

 
At 3/26/2012 11:15 PM, Blogger happyjuggler0 said...

Am I the only one who doesn't see a blue CPI line like the bottom of the chart implies I should see?

 
At 3/26/2012 11:35 PM, Blogger Benjamin said...

"You see, every survey of prices, scientific or large-scale anecdotal (such as this one), is deeply flawed, and they all should show a lot more inflation"--Vange, Morgan, Juandos

Not nay that, the Europeans have rigged their CPIs too--unless you want to say Euro living standards have soared past the USA in the last 20 years.

This large-scale MIT survey shows inflation dropping like a stone---what meagre inflation there is. I can remember the WSJ telling Volcker to cool it when inflation sank to 5 percent.

The challenge ahead for central banks is not inflation, it is deflation and gluts of capital. See Japan.

Gluts of capital can happen as interest rates cannot go to negative 3 percent. People are saving globally now, for reasons unrelated to interest rates: Retirement, college, to buy a house, economic security, to invest in a small business.

The challenge for central banks is to sop up the excess capital and fend off deflation.

Sustained quantitative easing appears to be the main solution. This is actually a great "problem" to have, if our monetary authorities can adjust.

Time for the Chicken Inflation Littles to join the Y2K Global Computer Meltdown Club.

 
At 3/26/2012 11:42 PM, Blogger PeakTrader said...

Happyjuggler, I don't see a blue line either. However, I'm getting snow blindness looking at the comments sections.

 
At 3/27/2012 4:31 AM, Blogger kmg said...

First of all, 2.2% is not exactly a low inflation rate.

Holy crap! An inflation rate any lower than that starts to cause more problems than it prevents.

Inflation nuts are the new peak oil nuts (or probably the same people desperately seeking a new place in which to revel in their Maoist-Malthusian cultism).

 
At 3/27/2012 8:30 AM, Blogger bart said...

Average inflation since 1960 has been 4%, so the BPP@MIT annual rate is close to half of the long-term average.

Average *corrected* inflation since 1980 has been 6%, at least when one observes that seniors on Social Security have lost huge amounts of purchasing power when their payments are only adjusted by the lying CPI.

Current real CPI & inflation is at least 8.7%. The primary difference is medical, which is about 17% of GDP but only 7% of CPI... and anyone who believes medical inflation (on an apples to apples basis) is only going up at 3.4% needs new glasses at the very least.

Failing to directly address any of the simple facts above for year after year (by any of the inflation deniers/ostriches) is nothing more than a 100% admission of being incorrect.


The BPP methodology is also severely flawed, and not just because it ignores services.


As long as McDonald's maintains its same Dollar Menu for years and years at a time, with a McDouble for $1, there really can't be too much inflation.

That's not only a *very* limited analogy (I could use Ferrari or Corvette prices and it would also be quite bogus), but fails to acknowledge things like smaller burger sizes over the years, the concept of loss leaders, etc.

 
At 3/27/2012 8:33 AM, Blogger bart said...

Inflation nuts are the new peak oil nuts


"An error does not become truth by reason of multiplied propagation, nor does truth become error because nobody sees it."
-- Mahatma Gandhi

"First they ignore you, then they laugh at you, then they fight you, then you win."
-- Mahatma Gandhi

 
At 3/27/2012 9:18 AM, Blogger juandos said...

"Inflation nuts are the new peak oil nuts (or probably the same people desperately seeking a new place in which to revel in their Maoist-Malthusian cultism)"...

Hey kmg, can I sell you my shares in the Brooklyn bridge?

Consider the following from the American Institute for Economic Research and the The EPI Reflects Basic Economic Change...

 
At 3/27/2012 9:29 AM, Blogger morganovich said...

the BPP is a totally unweighted index that mostly ignores food, healthcare, rent, education, and energy.

it massively overweights consumer electronics.

why ought one believe that it has anything at all to do with the basic consumption basket of an american?

it misses easily 2/3 of the typical consumption basket.

i mean, if you live in a cell phone and eat blu rays and laptops, this might be a great index, but it's pretty difficult for those paying rent, buying health insurance, eating actual food etc to take seriously.

all consumption baskets are somewhat arbitrary, but this one never even tried to be representative.


bart-

the other big difference is rent. CPI weights home ownership at 4:1 vs renting when the real ratio is 3:2. rents have been exploding.

weight rent and healthcare properly and you get maybe 2 points of additional CPI right there.

 
At 3/27/2012 1:52 PM, Blogger PeakTrader said...

The Fed has to dig deep to create any inflation, even with the help of Peak Oil.

 
At 3/28/2012 9:14 AM, Blogger bart said...

bart-

the other big difference is rent. CPI weights home ownership at 4:1 vs renting when the real ratio is 3:2. rents have been exploding.

weight rent and healthcare properly and you get maybe 2 points of additional CPI right there.


Quite true and thanks, although my work shows it is substantially higher than a 2% addition.

The primary reason I don't mention the rent ratio issue is that the inflation deniers don't even acknowledge (aka, run & hide from) the much larger issues about seniors on SS and what happens to their purchasing power, and how huge the gap is between healthcare CPI vs. GDP proportions. Cognitive dissonance to the max.


Additionally, the BPP/MIT work via PriceStats shows Argentinian inflation at about 4% currently - what a joke.

 

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