Inflation inches up

Jul 22, 2014 19:53 UTC

The latest inflation numbers are out. According to the Bureau of Labor Statistics, the consumer price index rose 0.3 percent in June, following a 0.4 percent rise in May, mostly thanks to high gasoline prices. However, core CPI — which ignores volatile food and gas prices — was only 0.1 percent. CPI year-over-year, which is the number commonly referred to when talking about inflation, now sits at 2.1 percent (1.9 percent without food and gas).


This has implications for monetary policy, as the Fed ponders when exactly to time its first interest rate hike (currently expected sometime early next year). Here’s more detail from Reuters:

Inflation is creeping up as the economy’s recovery becomes more durable, a welcome development for some Federal Reserve officials who had worried that price pressures were too low.

The steady increases have led some economists to predict that a separate inflation gauge watched by the Fed, currently running below the U.S. central bank’s 2 percent target, could breach that target by year-end as an acceleration in job growth lifts wages.

Fed Chair Janet [Yellen] warned last week the Fed could raise interest rates sooner and more rapidly than currently envisioned if the labor market continued to improve faster than anticipated by policymakers.

Inflating CPI

Jun 18, 2014 16:30 UTC

Inflation is finally looking up. US consumer prices rose 0.4% in May — the biggest one-month jump since February 2013 and twice what economists expected. This rise  could have implications for the Fed’s two-day policy meeting this week, though Reuters reports the expectation remains the same: the taper will continue, but an interest rate hike is still months off.


Reuters has more context about the CPI report:

May’s rise in consumer prices built on a 0.3 percent advance in April. With tensions escalating in Iraq, a major world oil producer, inflation is likely to push higher in the coming months.

In the 12 months through May, consumer prices increased 2.1 percent, the biggest gain since October 2012. That followed a 2.0 percent rise in the period through April, marking the first back-to-back months in which the year-on-year CPI had risen at least 2 percent since early 2012.

Stripping out food and energy prices, the so-called core CPI rose 0.3 percent, the largest increase since August 2011.


Inflation robs those who save, more especially so in a zero interest rate environment
Deflation rewards those who save.
Economists, or worse, hack writers pumping out propaganda to support a biased view that inflation is good, will learn one day that deflation can be good too, it’s all about how you manage it.

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U.S. consumer prices fall 0.1% in October

Nov 20, 2013 16:13 UTC

Consumer prices fell unexpectedly in October by 0.1%, in part due to falling gas prices, according to the Bureau of Labor Statistics. The Consumer Price Index has increased 1% over the last 12 months, the smallest such increase since October 2009.

Core CPI, which does not account for energy or food prices, rose 0.1%:

This level of inflation means that the Fed is likely to put off the tapering of asset purchases in its quantitative easing program at least through early 2014, according to Reuters. The Fed has an inflation target of 2%, but inflation has been consistently below that level.  Reuters has more details:

Economists polled by Reuters had forecast consumer prices unchanged last month and increasing 1.0 percent from a year ago.

The Labor Department said as a result of a 16-day government shutdown last month, the sample of prices used to calculate the October index was about 75 percent of the amount usually used in the CPI.

Here’s how inflation in the various CPI components, less food and energy, has fared since 2008:

Here’s more on the danger’s of too-low inflation in America and globally.

The U.S.’s tame wage inflation

Nov 19, 2013 15:47 UTC

High unemployment and a slow economic recovery are keeping wages from rising quickly, Reuters reports on new labor cost data. “Wages and salaries, which account for 70 percent of employment costs, rose 0.3 percent in the third quarter after gaining 0.4 percent in the prior period,” Reuters writes. Here’s more: 

The Employment Cost Index, the broadest measure of labor costs, increased 0.4 percent after advancing 0.5 percent in the second quarter, the Labor Department said on Tuesday.

Economists polled by Reuters had expected labor costs to increase 0.5 percent. In the 12 months through September, compensation costs rose 1.9 percent for a fifth straight quarter..

Benefits costs are rising more quickly than wages and salary, Reuters adds:

Benefit costs increased 0.7 percent in the July-September quarter, the largest gain in more than a year, after rising 0.4 percent in the second quarter.

Benefit costs rose 2.2 percent in the 12 months through September after advancing 2.4 percent in the period through September 2012.

Running parallel to employment costs is productivity, which was flat in the third quarter compared to the same time last year, according to data released last week from the Bureau of Labor Statistics.

Europe’s battle against deflation, the market impact

Nov 13, 2013 19:29 UTC

Last week, Counterparties rounded-up the growing fears of deflation in Europe, as the European Central Bank’s surprise rate cut to stave off that threat.  Today, Reuters has more:

The threat of deflation in the euro zone could reverse a major investment trend of 2013, drawing funds out of stocks and into government bonds and cash.

Europe is still some way from a negative inflation rate, let alone a Japanese-style deflationary spiral – the policymakers’ nightmare in which falling prices weaken demand, leading to wage cuts and even lower prices.

But a warning light is already flashing, with euro zone inflation registering a shock drop last month that prompted an interest rate cut.

Deflation, or a widespread drop in prices, can be terrible for labor markets, can discourage investment, and can make debtors fall deeper into debt — Paul Krugman has more hereHere’s what euro zone inflation and equities currently look like:

Reuters explains why more disinflation — or inflation that rises too slowly — could be bad for the market:

Deflation alone is not seen as an outright negative for equities, which can still rise if there is moderate growth.

But in such an environment, financial stocks tend to underperform because deflation increases a borrower’s real debt burden, contributing to higher non-performing loans and lower net interest margins for banks as the gap between short- and long-term interest rates narrows.

“Markets will be focusing on assets that provide nominal guaranteed returns such as government bonds. You would want to be aware of risks in equities, in particular in financials,” Bill O’Neill chief UK investment strategist at UBS Wealth Management tells Reuters.

“There is definitely a whiff of disinflation again taking hold globally,” Robert Sinche, global strategist at Pierpont Securities Holdings told Bloomberg.

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