Thursday, August 18, 2011

CPI Core Inflation Stays Below 2% for 32nd Month

The BLS released its monthly CPI report today for July, here are some highlights:

1. From July of last year, the all items CPI inflation was 3.6%, the same rate as in May and June (see chart above). 

2. Over the last 12 months through July, food prices have increased by 4.2% (highest since March 2009), overall energy prices by 19%, and gasoline prices by 33.6%.  Oil prices have fallen by almost 17% over the last month from mid-July, which would mean that energy inflation has already moderated substantially and will likely be much lower for the August CPI report.  Thanks to the ongoing "shale gas revolution," natural gas prices fell by -2.8% over the last year. 

3. Core inflation (CPI less food and energy) was 1.8% from last July, the highest rate since April 2009, but the 32nd consecutive month below 2% (see chart above).

MP: Despite the recent increases in food and energy prices, core inflation remains low - below 2%.  Looking at U.S. inflation rates for overall prices and core prices on a monthly basis back to January 1958 (see graph above), the recent record of U.S. inflation still looks a lot more like the price stability of the late 1950s and 1960s than the inflationary 1970s and early 1980s.  One difference is that overall inflation has been much more volatile than core inflation over the last decade, compared to the 1958-2000 period when overall and core inflation moved much more closely together.  And maybe it's that greater volatility in food and energy prices in recent years that makes inflation seem worse than it really is.  It still seems hard to make a strong case for 1970s-style inflation when core inflation is below 2%.    


At 8/18/2011 9:47 AM, Blogger morganovich said...


you are grafting 2 series together.

you cannot compare pre 1992 CPI with post.

it's a totally different measure.

the "downturn" in inflation from the early 90's is an artifact of the methodological changes in the mid 80's and in 1992.

if you normalize it, inflation looks quite high by historical standards.

we'd be running in the double digits.

alternately, if you used the current methodology on the past data, the 70's would have peaked at 5%ish.

this is just not a valid was to use data.

you are comparing apples and oranges.


look at the data:

since 1992, the CPI is much more volatile relative to "core". that's because it's harder to apply arbitrary quality adjustments and often wildly incorrect geometric weighting to energy and food.

geometric weighting hides more than it reveals. the whole premise is fundamentally flawed.

it assumes that all price moves come from the supply side.

if the atkins diet hits, and people want more bacon and less pasta, bacon goes up in price and pasta down (this really happened).

that drop in pasta prices does not increase units demanded. it is caused by a reduction in demand.

geometric weighting gives you precisely the wrong signal in such a scenario.

it assumes we consume more pasta and less bacon, when the reverse is true.

this makes it massively understate inflation.

At 8/18/2011 10:01 AM, Blogger morganovich said...


when CPI has been running above core 3/4's of the time for a decade (often by 2-3%), these sorts of mean reversion arguments lose their bite.

the two tended to line up well pre 1992, but not anymore.

At 8/18/2011 10:38 AM, Blogger Benjamin Cole said...

The CPI read 225.92 for July, up 2.7 percent from 219.96 for July of 2008.

People forget we sustained full-on deflation for a while.

Actually, 2.7 percent increase in prices over three years is too low. The Fed starts hitting zero bound, and cannot stimulate the economy.

We become Japan.

Better the Fed follow Milton Friedman's advice, and in this case print more money.

BTW. if Morgan's UFO-ology is correct, and we are actually suffering from massive inflation (that does not show up in real estate or equities prices), then we are also seeing huge increases in the number of poor people in the USA, and also falling well behind socialist Europe in all regards.

Shadowstats is a crank operation, run by a crackpot. Some lulus and misfits listen to his jibberish, but no one listensat the "elite" universities identified by Morgan.

Morgan: Rather foolishly, you identified the other day our top universities--Yale etc. Can you name a single economics professor at said schools who relies on shadowshit? Why do the vast majority of economics professors at your "top" schools rely on BLS data, or even suggest BLS data is too low in estimating inflation?

So, are you sure you are not a lulu, in this regard?

At 8/18/2011 10:50 AM, Blogger morganovich said...


and your math is just as bad as it was last time.

from the cut and paste bunny file:

"it's like saying, well i drove 9 miles at 10 mph and the last mile at 110 mph and it only averages 20mph, so it should not have hurt when i crashed in that last 100 yards.

you are one of the most numerically illiterate people i have ever met."

you are literally arguing that a pot of water is not boiling now because it was cool and hour ago.

you appear totally unable to understand this, but that's why i keep the bubble bunny cut and paste file. you seem to believe that repetition creates truth, so maybe it finally gets through to you.

At 8/18/2011 11:01 AM, Blogger morganovich said...


i can tell you that david einhorn at greenlight and steve cohen at SAC both read.

i know this from personal conversations with both.

the same is true of firestorm, a hedge fund based entirely on inflation.

there are lots of services that wall st used to get real inflation numbers. shadowstats is just the only one that will let you see some graphs without a password.

i know funds that pay $100's of thousands a year for similar data.

there is an entire field of economist that make a living trying to relate BLS fiction with reality.

only a fool swallows statistics unquestioningly.

(note: this makes you a fool, but we knew that)

i heard about this CPI shift even as an undergrad. my thesis adviser was livid about it (he had been a policy adviser to reagan)

the BLS is not some independent organization.

they are political appointees and subject to pressure from elected officials.

go back and read the congressional debates. boskin was ideological air cover for the clinton policy to rein in entitlements.

that's what the debate was about.

i note you STILL have not produced even a single piece of objective data from his report.

seriously, try it.

you will not be able to do so.

it's a work of fiction, not science.

At 8/18/2011 11:16 AM, Blogger morganovich said...

here's a nice work through for you:

also: the last time i saw robert shiller (yale of case shiller index fame) speak (2007 maybe?), he said CPI was massively understating inflation and that the owner equivalent rents metric was a joke.

At 8/18/2011 11:35 AM, Blogger Benjamin Cole said...


Have you found any dilithium crystals in your exploration of Area 51? Are you keeping said crystals a secret?

At 8/18/2011 12:31 PM, Blogger $9,000,000,000 Write Off said...

If we're experiencing the 32nd consecutive month below 2%, does the Fed have a plan to "catch-up" to its target 2%?

Does it target 2% over a moving 1 (or 2, or 3) year period, or just focus monthly and, if it misses, forgets about it?

At 8/18/2011 12:52 PM, Blogger morganovich said...


wow. more stupid non sequitor.

you really cannot speak to these issues at all, can you?

go back to sniffing the varnish and leave the economics to those equipped to understand and comment on them.

At 8/19/2011 11:09 AM, Blogger morganovich said...

Higher prices: the big trend for back-to-school


NEW YORK (AP) -- Stores are trying everything they can think of to disguise the fact that you're going to pay more for clothes this fall.

Some are using less fabric and calling it the new look. Others are adding cheap stitching and trumpeting it as a redesign. And the buttons on that blouse? Chances are you're not going to think it's worth paying several dollars more for the shirt just to have them.

Retailers are raising prices on merchandise an average of 10 percent across-the-board this fall in an effort to offset their rising costs for materials and labor. But merchants are worried that cash-strapped customers who are weighed down by economic woes will balk at price hikes. So, retailers are trying to raise prices without tipping off unsuspecting customers.

"Let the consumer trickery begin," said Brian Sozzi, Wall Street Strategies retail analyst

Retailers have long tried to mask price hikes - for instance, jacking them up more than needed so that they can offer a "sale" on the higher price. But the new strategies come as merchants' production and labor costs are expected to rise 10 percent to 20 percent in the second half of the year after having remained low during most of the past two decades. Costs can quickly add up: Raw materials account for 25 percent to 50 percent of the cost of producing a garment, while labor ranges from 20 percent to 40 percent, analysts estimate.


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