Inflation | timiacono.com

The Deflation Bogeyman

Given this year’s tumbling oil prices, the image below from this QuickTake at Bloomberg seemed to be about as good a way as any to close out 2014 – Happy New Year!

The article itself contains all the usual conventional wisdom about the ill effects of falling prices but, of course, it excludes 19th century monetary history that is notable because there were regular bouts of deflation and short-lived depressions during an era of sound money that, over nearly 100 years, produced zero percent inflation, as opposed to the roughly 2000 percent inflation we’ve seen since the founding of the Fed in 1913.

The Labor Department reported that annual inflation in the U.S. rose above 2 percent for the first time since late-2012 as a surge in energy prices added to broad-based inflation in other categories of consumer goods and services. Overall prices jumped 0.4 percent in May, the biggest gain in almost two years, and are now 2.1 percent higher than a year ago.

Expectations were for an increase of just 0.2 percent and “core” consumer prices – excluding food and energy – came in higher as well, up 0.3 percent versus a consensus estimate of 0.2 percent. On a year-over-year basis, core inflation now stands at 2.0 percent.

Overall energy prices jumped 0.9 percent last month paced by a surge of 2.3 percent in electricity costs and an increase of 0.8 percent for motor fuel. Food prices rose 0.5 percent with a gain of 1.4 percent for meat, poultry, fish, and eggs leading the way, closely followed by a gain of 1.1 percent for fruits and vegetables.

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Rosenberg on Inflation and the Fed

Gluskin Sheff chief economist David Rosenberg talks about such things as wage inflation where it matters and nascent rising prices with a ditzy Trish Regan who seems intent on extrapolating from a single month of data (last week’s negative PPI print for May).

Rosenberg has been warning about higher inflation for some time now and it’s worth pointing out that his track record on this sort of thing is pretty good.

I’ll never forget a few years back when he was predicting 10-year yields of 1.5 percent and everyone, including myself, thought he was kind of nuts.

Consumer Prices Jump 0.3% in April

The Labor Department reported that consumer prices jumped 0.3 percent in April, due largely to the rising cost of food, motor fuel, and other transportation items as the annual rate of inflation in the U.S. now stands at 2.0 percent. Excluding food and energy, prices rose 0.2 percent last month, now up 1.8 percent from a year ago.

This marked the biggest increase in the cost of living in 10 months and, after yesterday’s surge in wholesale prices as noted here, signals new concern over rising inflation, a topic that has been off-the-radar of both investors and policy makers at the Federal Reserve.

Three times in the last eighteen months annual inflation has risen to 2.0 percent, but it has not exceeded that level since late-2012 as it came down from multi-year highs in 2011 that, not coincidentally, marked the all-time nominal high for the gold price.

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