Inflation |

Skip to about about the 40 second mark of the CNBC video below to hear Peter Boockvar, Chief Market Analyst for the Lindsey Group, talking about nascent signs of higher inflation in the latest U.S. economic data (that might, someday, be noticed by somebody) following years of central bank money printing (a.k.a. “QE Fluff”).

About half-way through, Boockvar talks about how inflation can increase rapidly and of the Federal Reserve’s multi-year forecast for very tame consumer prices.

One of the consequences of a more open Fed is that they publish a huge number of economic forecasts, inflation being one of them. It will surely be fun to recall this period in 2014 if, sometime in the years ahead, sharply higher inflation rates finally arrive.

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Gas Price Increases Adjusted Out of CPI

Anyone looking for a good example of the impact of seasonal adjustments in general and how rising pump prices can translate into falling fuel prices when the government reports its monthly inflation data need look no further than today’s report on consumer prices.

As noted here earlier, despite the roughly five percent increase in the cost to fill your tank, the Labor Department said it actually cost 1.7 percent less and the table below showing the change in pump prices from February to March over the last few years explains why.

For whatever reason (most likely reduced supply due to the beginning of the winter/summer switchover and spring refinery maintenance), prices usually increase sharply from February to March and the raw data collected by the Energy Department and the Labor Department is consistent in that regard as shown above.

But, the Labor Department then attempts to smooth this data to remove this effect and better see the underlying trend, so, in this case, that results in a downward adjustment of almost seven percentage points for gasoline prices for the month of March.

Interestingly, that doesn’t appear to make the monthly chart look much smoother as shown below, but there’s probably an explanation for that too.


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Consumer Prices See Modest Rise

The Labor Department reported that rising food costs were offset by falling energy prices and consumer prices rose 0.2 percent in March after a gain of 0.1 percent in February.

On a year-over-year basis, the official measure of annual inflation in the U.S. is now 1.5 percent, up from 1.1 percent the month prior.

Food prices rose 0.4 percent last month paced by a 1.9 percent jump in the cost of beef and an increase of 1.1 percent in pork prices. Rising shelter costs also contributed to the overall gain as owners’ equivalent rent and actual rent both rose 0.3 percent.

Despite the sharp rise in pump prices last month (about 5 percent according to the Energy Department), the Labor Department reported that fuel costs fell almost 2 percent last month, presumably due to seasonal adjustments where the normal price rise this spring was not as large as in previous years.

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Beef Prices Reach Record High

The LA Times reports that it’s going to be pretty expensive to cook out this summer as beef prices have risen to all-time highs as shown below via as extreme weather and smaller herd have combined to limit supply.

One deli owner (think pastrami and corned beef ) noted that his costs are up 45 percent in recent years, a figure that appears to be consistent with the slope of the curve below.

We haven’t bought any steaks since last summer, so, I’m sure there will be some sticker shock the next time we pick up a four-pack at Costco, all the more reason to stick with chicken and pork where, as far as I can tell, prices haven’t seen the same kind of escalation.

One casualty of higher beef prices is that the popular $1 value meals at some fast food restaurants might go the way of the dinosaurs.

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