Friday, May 11, 2012

Producer Price Inflation Eases in April to 1.9%

The BLS reported today on producer prices for April, here are some highlights:

1. Prices for finished goods increased annually by 1.9% through April, the seventh straight month of slowing year-over-year inflation rates following a 7% increase for the 12 months through September 2011.  It was the smallest annual increase in producer price inflation for finished goods since October 2009 (see brown line in chart above). 

2. Intermediate goods increased by only 1.1% on an annual basis through April, the smallest yearly increase since June 2010 (see red line in chart).

3. Prices for crude goods fell by 7.3% from April last year, led by sharp declines in food and energy prices (see blue line).

MP: Overall, the declining inflation rates for producer prices in April should ease some of the fears of inflationary pressures at the consumer level. Falling raw material costs for producers means that there won't be any input-cost based incentives to raise prices on consumer goods, and we can expect low and stable consumer inflation this year.     

23 Comments:

At 5/11/2012 9:56 AM, Blogger bart said...

Until RIND turns, inflation will likely keep heading down.


http://www.nowandfutures.com/images/rind_leads_cpi.png

 
At 5/11/2012 10:20 AM, Blogger Buddy R Pacifico said...

This is good news for those of us that believe that the CPI is understated, because of food and energy price slighting.

One index that may be affected is the Big Mac Index. From the BLS Report:

"Finished foods: The index for finished consumer foods rose 0.2 percent in April, the same as in March.

The April advance was led by prices for beef and veal, which climbed 4.3 percent."

 
At 5/11/2012 10:27 AM, Blogger bart said...

Both soybeans and rice are also moving up fast, and I'm mostly trading ag stuff these days - along with precious metals hedging.


Here's CRB foodstuffs:

http://www.nowandfutures.com/images/crb_foodstuff_cpi_lies1947on.png



And the UN Food index, short term:

http://www.nowandfutures.com/images/un_food_price_indexes_sh.png

 
At 5/11/2012 10:39 AM, Blogger Buddy R Pacifico said...

bart,

are you pissed off you did not position in urea? It's soaked up a 50% gain over the last year and 20% in the latest month. :>)

 
At 5/11/2012 10:46 AM, Blogger morganovich said...

one of the big stories that seems to be getting surprisingly little coverage is how much rents are up.

that is the biggest monthly expense for many households and a larger number are renters than pre housing crash.

truila puts rent in april up 5.6% year on year nationally.

that's a big, big jump.

rents are deeply underweighted in cpi.

owner equivalent rents in cpi weight rent at a 1:4 ratio to own, when the real ratio is more like 2:3 meaning rent is getting about half the weighting it ought to.

i think there is some evidence that inflation is moderating, but using the 1990 cpi, it's still running at 6% (though down from the mid 7's.)

 
At 5/11/2012 11:26 AM, Blogger bart said...

Buddy:

Cage. You. Now.

 
At 5/11/2012 11:30 AM, Blogger bart said...

Trulia data almost matches the most recent Census Bureau data, up 5.6% YoY.

BLS OER is only up about 2%, BLS rent about 1% - yet more evidence of BLS BS.


http://www.nowandfutures.com/images/rent.png

 
At 5/11/2012 12:44 PM, Blogger Benjamin said...

Inflation is dead.

Look at the chart.

Some pundits are now sniveling about rates of inflation below those of when when Reagan was president---the great inflation fighter.

What is the "true" rate of inflation? Some, such as Don Boudreaux, ex-chair of George Mason U. econ dept, contend the CPI overstates inflation.

There is no one right or perfect way to measure inflation. As long as it is below six percent, it ain't worth jack worrying about.

The important thing is real economy growth.

Anyway, look for a Romney win, and an end to sniveling about inflation.

Everybody then will be talking about the Fed needs to go boom-boom-boom-boom on the economy.

 
At 5/11/2012 1:00 PM, Blogger morganovich said...

benji-

i have a challenge for you.

find one piece of actual empirical evidence that inflation is understated.

you make constant appeals to authority about this, but you have never provided even a single piece of empirical data.

the academics can say what they like. those who need to be right to get paid (gross, einhorn, volcker) say the opposite.

read the boskin report. i think the fact that it contains NO EMPIRICAL EVIDENCE AT ALL may surprise you.

oh, and one more thing,
you still have not answered my repeated question: "was inflation high in the 70's?"

it's a simple question.

why is it you are so unwilling to provide an answer?

 
At 5/11/2012 1:03 PM, Blogger Jon Murphy said...

Dr. Perry,

May I adjust your last statement a little?

You wrote: "Falling raw material costs for producers means that there won't be incentives to raise prices on consumer goods, and we can expect low and stable consumer inflation this year."

May I amend it to read "Falling raw material costs for producers means that there won't be input-cost based incentives to raise prices on consumer goods, and we can expect low and stable consumer inflation this year."

I realize this is fairly unlikely given the high level of unemployed, but we could see demand-push inflation in some sectors, such as automobiles.

 
At 5/11/2012 1:04 PM, Blogger morganovich said...

benji-

also:

i agreed with you the other day about it being a good idea to rein in the ad hominem.

however, i just want to point out that posts like the one you just put up are are hardly in the spirit of such and are precisely what make you such a target.

describing those who disagree with you as "sniveling" is ad hominem and inflammatory.

if you do not wish to be a target, you ought to avoid targeting others with it. and being deliberately and unnecessarily inflammatory.

you can't have it both ways.

just some food for thought.

 
At 5/11/2012 1:17 PM, Blogger bart said...

find one piece of actual empirical evidence that inflation is understated.


I've done so, many times - the comparison yesterday between CPI (energy, etc.) and the actual WTIC prices.

Another is the huge & growing gap since 1968 between CPI share and GDP share of medical.

Another is the lack of reverse hedonics.


There are many, many, many more - but they all require actually looking at the respective facts.

 
At 5/11/2012 1:23 PM, Blogger bart said...

Almost forgot almost my all time favorite BLS BS - when the BLS went back and used the '80s methods (CPI-U RS), they came up with about .5% difference after 1983.

I not only believe that as much as I believed the lying about the Pueblo or the Pentagon Papers, especially given all the actual empirical evidence I've noted and published over the years... but the whopper and truly ironically funny is that all the wonderful changes that the BLS did to CPI-U that were supposed to make it more accurate (and on which they likely spent millions) made virtually no difference. In other words, they admitted that their efforts have been almost worthless.

 
At 5/11/2012 1:30 PM, Blogger Benjamin said...

Morgan-

When I refer to pundits or anonymous people "sniveling" I am not engaging in ad hominem invective.

I do not mention anyone by name. I think that is fair.

I also bash both political parties for being feebleminded (Dems) or Grifters on Parade (GOP). Again, this is not personal invective. Some make take personal offense---but party bashing, or ridiculing movements etc has to be fair game. The "green movement" is ridiculed on this board all the time, That is fair game, I say.

I have already stated you are probably a smart guy. We disagree on some issues.

As for inflation, since there is no true and fair way to measure inflation, I don't see how we can say whether it is high or low right now.

My opinion, based on the BLS numbers, the MIT stuff, and the continual rapid evolution of goods and services and market response to that evolution, is that the CPI probably overstates inflation.

I am open to other opinions.

 
At 5/11/2012 2:10 PM, Blogger juandos said...

Hmmm, inflation is low...

Just out of curosity I used this inflation calculator...

Note the following: $1.00 in 2002 had the same buying power as $1.28 in 2012.
Annual inflation over this period was 2.48%...

That's really not to bad is it?

 
At 5/11/2012 2:36 PM, Blogger morganovich said...

banji-

referring to "some pundits" as "sniveling" is inflammatory and ad hominem. you are attacking and degrading them, not their positions.

the fact that you cannot see why this makes you a lightning rod for others attacks is likely why you get attacked so frequently.

i think you will wind up with more productive conversations here if you avoid doing things like that.

you are, of course, free to ignore my advice, but i suspect the result will be more folks getting personal with you.

hiding behind "i named no one specifically" is not valid. were i to say "and the idiot blather of the inflation is too low crowd", i would name no one specifically, but it's still invective and still ad hominem.

but hey, make you own bed, but if you do, no complaining about having to lie in it.

 
At 5/11/2012 2:46 PM, Blogger Paul said...

"Anyway, look for a Romney win, and an end to sniveling about inflation."

This reminds me of Benji's repeated assurances before the 2010 elections that GOP "sniveling" about debt would disappear and Republicans would ramp up the lardfest to unprecedented levels.

I'd say Benji's latest prediction is about as accurate.

 
At 5/11/2012 2:48 PM, Blogger morganovich said...

regarding inflation measurement, sure, there is no perfect method, but one can clear find some that are worse than others.

let's take an example. if consumption of pinot noir goes up and consumption of merlot goes down, i presume you would agree that weighting pinot more heavily in the consumption basket would better reflect what people are spending.

but, perversely, in the current CPI basket, the opposite happens. merlot demand drops, so merlot price drops, so CPI overweights it and then underwieghts pinot because demand for it rose and drove price up.

(note: this actually happened due to the movie sideways)

whatever else we believe, we can agree that this is a worse way to measure inflation than keeping the weights equal as we have moved them in the wrong direction.

this same thing has happened to rent vs ownership in housing and in healthcare as a % of consumption.

there can be no possible benefit to the accuracy of any inflation measure from systematically misweighting consumption.

the "price down consumption up" weighting idea is simple and seductive, but largely wrong. ti assumes that price moves are supply, not demand driven.

if power rangers get popular and gi joe goes out of favor and the former rise in price and the latter drop, the correct response is NOT to up gi joe's representation in the consumption basket. it is the very fact that demand fell off that dropped unit sales and price.

you now seem to be hiding behind this evolution in you position from "inflation is deader than jimmy hoffa" to "
As for inflation, since there is no true and fair way to measure inflation, I don't see how we can say whether it is high or low right now." seems like an attempt to make the perfect the enemy of the good.

there is no perfect measure of anything, not time, distance, temperature, or inflation. all forms of measurement have limitations. this does not stop them from being useful nor prevent us from demonstrating that some measurements are demonstrably superior to others.

i find it surprising that someone who is generally so accepting of government cupidity, stupidity, and corruptions finds it so difficult to believe that the government would deliberately adulterate the CPI calculation for political ends (to lessen COLA adjustments for SS and medi).

that's what happened. go back and read the debates of the time. they may surprise you.

 
At 5/11/2012 2:48 PM, Blogger Paul said...

Morganovich,

Agree with you about Benji's games. He routinely rolls in here throwing thinly veiled jabs and then cries like an innocent little girl when he gets it back directly.

 
At 5/11/2012 2:52 PM, Blogger morganovich said...

juandos-

that calculator is only as good as its source data.

if, to use an example, we use 1990 cpi methodology, then cpi has averaged more like 5% and it takes $1.63 worth of 2012 dollars to equal $1 in 2002.

in fact, this is precisely why cpi was changed: to reduce the real value of future entitlement payments.

 
At 5/11/2012 3:35 PM, Blogger juandos said...

"that calculator is only as good as its source data"...

Yeah, I know morganovich and I picked that particular one for the very reason you pointed out...

One of the major problems I have with these inflation fairy tales is that they have no practical day to day value regardless of how they're measured for the 'most' part...

The other major flaw that I see is that taxes, fees, finds, and other forms of government overhead costs on the individual are seemingly ignored again for the 'most' part...

So in my own particular case I tend to measure inflation in what a basket of a dozen goods and services that I use all the time cost me in net dollars in this time frame vs the last time frame, etc...

The time frame is four weeks...

Energy costs are in my basket...

So after covering the costs in my basket the left over is the disposable cash and for me a true reading of real world inflation...

 
At 5/11/2012 7:21 PM, Blogger Benjamin said...

Morgan-

As you post points out, measuring inflation practically gets into metaphysics.

The rapid evolution of goods and services---for example, in my line of work, I use a lot of digital photography, and send images globally, and post on Craigslist and eBay etc.

To do the same work in the film days would have cost perhaps 10 times as much---and even then, not a good comparison. How do you develop film and show an audience of potential millions your product in a hour or two, even people in SE Asia?

I guess you would have had to snap a picture, develop it, send it by AP wire machine to Bangkok and broadcast it on TV.

A CPI index of my life in many ways does not even make sense. I have no secretary, though n days of yore--before answering machines, before online PCs, it would have been necessary. I rent much less space (actually I own, but same diff)

Yes, my opinion is that, as a threat to our prosperity, inflation is deader than Whitney Houston.

We are suffering from a lack of demand. Our supply lines into the USA are global---services, goods and capital flow easily. Even labor did until we closed the border.

We can ramp demand waaaayyyy up and suffer no ill consequences.

 
At 5/12/2012 8:45 AM, Blogger VangelV said...

Not as simple as you think boys and girls.

You can hide the price increases in many ways.

 

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