Inflation at Three-Year High of 3.9%

The Labor Department reported that the rising cost of energy products and food drove consumer prices 0.3 percent higher in September and that the annual inflation rate now stands at 3.9 percent, the highest level since September 2008.

Paced by a 2.9 percent rise for gasoline, up 33.2 percent on a year-over-year basis, overall energy prices jumped 2.0 percent last month and are now up 19.3 percent from a year ago.

Food & beverage prices rose 0.4 percent in September and are now 4.5 percent higher than last year at this time while the “food at home” subcategory rose 0.6 percent for the third month in a row, now up a stunning 6.3 percent on a year-over-year basis.

(more…)

Tagged with:  






ISM Manufacturing Index Beats Estimates

The broadest measure of manufacturing activity in the U.S. came in better than expected, the ISM Manufacturing Index rising from 50.6 in August to 51.6 in September with the important new orders component unchanged at 49.6 indicating only a modest contraction.

There were improvements in production (up from 48.6 to 51.2) and the employment component (up from 51.8 to 53.8) though backlogs fell (down from 46.0 to 41.5), a sign of an ongoing slump in new business that managers hope doesn’t get any worse.

Those wondering if 2011 will “rhyme” with 2008 are advised that, three years ago, this index plunged from 49.3 in August to 43.4 in September before tumbling further to 38.7, 36.6, and then an ultimate low of 32.9 in December. We’ve yet to have anything resembling the late-2008 plunge, despite some horrific regional reports in recent months.

Tagged with:  

An “Inflation Spike” in Germany?

It would appear that the 1920s Weimar experience still haunts Germany as a 2.6 percent increase in consumer prices from a year ago, up from a 2.4 percent rate last month, would not likely be characterized as an “inflation spike” (or, generally speaking, cause for much concern or spilled ink by the financial media) in other countries.

This comes as the rest of the world increasingly expects the European Central Bank to come to the aid of the euro zone economy by lowering short-term interest rates from their current elevated level of 1.5 percent, more evidence that the world grows a bit more mad every day.

Tagged with:  

The Rising Cost of Medical Insurance

We’ve been on our own now health insurance-wise for almost five years, rolling the dice with a high-deductible plan and, despite having our premiums rise about 20 percent a few months ago, so far, so good (we actually pay less than what we did five years ago, though our deductible is higher). Of course, that 20 percent hike worked off of a much smaller base than your standard, employer provided low-deductible plan, so, the sight of $15,000+ average premium as detailed in this McClatchy report took me a bit by surprise.

The costs of employer-provided health insurance plans saw their biggest increases since 2005, that is, back when double-digit percentage hikes to premiums were the norm as documented in Open Enrollment and the CPI at the old blog.

Tagged with:  

The Chained CPI is Inevitable

Everything you ever wanted to know about the inevitable switchover from the government’s current official measure of inflation to what is commonly referred to as the “chained CPI” is contained in this article by Alan D. Viard at the American Enterprise Institute.

And the reason why you’ve read the word “inevitable” twice already above is that this change is about as close as anything will come to a slam dunk as part of the nation’s budget debate. While decried by many as being part of the government’s intention to “mask” inflation, the broader substitution of items in the official shopping basket that the chained CPI represents does make a good deal of sense when looked at closely. But, much more importantly, its impact on the government’s bottom line is significant as detailed below.

By indexing tax brackets more slowly, a switch to the chained CPI would increase revenue. By reducing the COLA for federal benefit programs, the switch would also reduce benefit outlays. Both the revenue increase and benefit reduction would lower the deficit. In its most recent survey of deficit reduction options, the Congressional Budget Office presented budgetary estimates for a switch to the chained CPI and summarized the policy arguments for and against that change. Based on its expectation that the chained CPI will increase 0.25 percent per year more slowly than the CPI-U and the CPI-W in upcoming years, the CBO estimated that a switch would increase income tax revenue by $72 billion, reduce Social Security benefits by $112 billion, and reduce federal pensions and veterans’ benefits by $24 billion from fiscal 2012 through 2021.

The broader questions about measuring inflation (none of which you’re likely to hear during what little debate there will be on this subject) have much more to do with, for example, whether or not it’s a fair gauge to be used for social security recipients who have a shopping basket very different than the one  that either today’s CPI or the chained CPI represent.

Another subject you don’t hear anything about is how the decades-long trend of cheap imported goods offsetting the rising cost of domestic services to produce benign inflation have temporarily distorted any measure of inflation, a development that future policy makers will ultimately have to deal with as the great equalization of wages in a globalized economy causes U.S. living standards to fall for the foreseeable future.

Tagged with:  

A Flawed Mandate

[Another dive back into the archives begins as my wife and I head to the Great White North for some outdoor adventure in the Canadian Rockies. This time, writings from the month of August and early-September over the last six years will be recalled, many of them related to past Federal Reserve gatherings in Jackson, Wyoming, where, later this week the central bank will meet again. First up is an item originally published on August 19th, 2005 that provides a good setup for what is to come later this week - both here and in Jackson Hole.]

ooo

So, here we are in the summer of 2005, nearing the end of the 18 year term of Alan Greenspan. We cannot help but marvel at two things – how lucky Mr. Greenspan was to have started his term when he did, and what a poor job he has done in the last ten years.

The reason we say this is that his term has benefited from one notable condition, low inflation (as measured by consumer prices), and Mr. Greenspan has responded to this condition in an inappropriate manner that has resulted in a series of asset bubbles and global imbalances that his successor will inherit.

Some say that the Greenspan Fed has been “fighting” inflation, and that is why it has remained low. This is far from the truth. Paul Volcker “fought” inflation by raising interest rates to near 20% and inducing a recession. The Greenspan tenure at the Fed has been marked by moderate energy prices and inexpensive imported goods from Asia, which have offset other rising prices to keep overall consumer prices relatively low. Some statistical slight-of-hand with inflation calculations and deliberately misleading reporting of inflation (i.e., emphasizing “core” inflation) has helped keep a lid on “reported” consumer prices as well.

Both of the first two factors, inexpensive energy and imports, are beyond the control of the Fed and are not likely to continue.

(more…)

Page 4 of 23« First...234561020...Last »
© 2010-2011 The Mess That Greenspan Made