CPI records the biggest drop since 1933

The U.S. Department of Labor reported the inflation numbers for November yesterday. With seasonal adjustments, the Consumer Price Index for All Urban Consumers (CPI-U) declined by 1.684% in November compared to October and was 1.01% higher than November 2007. This was the largest one month decline since the seasonally adjusted data began in 1947. CPI-U is now 2.793% below the high reached in July 2008.

The New York Times is reporting that the three month change in CPI-U not seasonally adjusted declined by 3.00% and that is the largest drop since 1933. These are truly historic times.

We have gone from inflation concerns in the beginning of the year to facing deflation. The huge rise and fall of inflation was due mostly to the oil bubble. Core CPI (CPI less food and energy) with seasonal adjustments was marginally up by 0.022% compared to October and up by 1.986% compared to a year ago.

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CPI turns negative; Stag-Deflation, here we come

The U.S. Department of Labor reported the inflation numbers for October yesterday.  With seasonal adjustments, the Consumer Price Index for All Urban Consumers (CPI-U) declined by 0.96% in October compared to September and was 3.88% higher than October 2007.  This was the largest one month decline since the seasonally adjusted data began in 1947. 

We have gone from inflation concerns in the beginning of the year to facing deflation.  The huge rise and fall of inflation was due mostly to the oil bubble.  Core CPI (CPI less food and energy) with seasonal adjustments was down by a tamer 0.07% compared to September and up 2.22% compared to a year ago.

Nouriel Roubini, Professor of Economics at the Stern School of Business at NYU, has predicted that we would be entering into a period of stag-deflation since January:

Back in January, I argued that four major forces would lead to a risk of deflation-- or "stag-deflation," where a recession would be associated with deflationary forces--rather than the inflation that mainstream analysts have worried about. They were: (1) a slack in goods markets, (2) a re-coupling of the rest of the world with the U.S. recession, (3) a slack in labor markets, and (4) a sharp fall in commodity prices following such U.S. and global contraction, which would reduce inflationary forces and lead to deflationary forces in the global economy.

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GDP falls by 0.3%; consumer spending drops by 3.2%

The Bureau of Economic Analysis released the advance Gross Domestic Product figures for the third quarter today. Real GDP, adjusted for inflation, fell by an annualized rate of 0.25% in the third quarter 2008 compared to the second quarter 2008. This is better than expected. Economists had expected a 0.50% drop. The second quarter grew by a revised 2.80%. This is the second time in a year that Real GDP has been negative (fourth quarter 2007 declined by 0.17%). Adjusted for both inflation and population, real per capita GDP fell at an annualized rate of 1.19% in the fourth quarter 2007. It barely rose by 0.02% in the first quarter 2008, rose by 1.92% in the second quarter, and fell by 1.28% in the third quarter.

So far the current possible recession has been very mild. However, looking at the numbers behind the GDP reveals a harsher picture. Consumer spending in the third quarter fell sharply by an annualized rate of 3.17%. This is the first drop in personal consumption expenditures (PCE) since the recession of 1990-1991. Real GDP dropped by only $7.4 billion from the third quarter to the second quarter. PCE dropped by $66.1 billion. This was offset by a net increase in exports of $31.1 billion. Helped by the weak dollar, exports rose by $22.3 billion. Recently the dollar has strengthened and the global economies have weakened. Also contributing was a new record for spending on national defense of $550.6 billion in the third quarter. This was an increase of $22.5 billion over the second quarter. In percentage terms of GDP spending on national defense is at the highest level since 1993.

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Inflation at 17 year high

The U.S. Department of Labor reported the inflation numbers for July today. Before seasonal adjustments, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.53% in July over June and was 5.60% higher than July 2007.  The year over year rate of CPI is the highest since January 1991. Core CPI (CPI less food and energy) before seasonal adjustments was up by 0.23% compared to May and up 2.51% compared to a year ago. Seasonally adjusted, CPI-U rose 0.82% over June, twice as much as expected, and core CPI rose 0.33% instead of 0.2% expected by economists. The surge in CPI-U was driven by energy prices. Energy increased 4.0% in July over June.  Crude Oil futures have come down recently so this should alleviate some of the inflation pressures.

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Real GDP grew by 1.88% in the second quarter; was negative in the fourth quarter 2007

The Bureau of Economic Analysis released the Gross Domestic Product figures for the second quarter today. Real GDP, adjusted for inflation, rose by an annualized rate of 1.88% in the second quarter 2008 compared to the first quarter 2008. The first quarter grew by a revised 0.87%. Fourth quarter 2007 was revised down to -0.17% down from the previously announced figure of +0.60%. December 2007 could be considered the start of the recession.

Adjusted for both inflation and population, Real per capita GDP fell at an annualized rate of 1.19% in the fourth quarter 2007. It barely rose by 0.02% in the first quarter 2008 and rose by 1.00% in the second quarter. While inflation is making the headlines with rising food and gas prices, the price deflators used to calculate GDP went down to 1.1% in the second quarter from 2.6% in the first quarter. The monthly increases in Core CPI for the second quarter averaged an annualized rate of 2.33% and CPI averaged a whopping 7.66%.

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Inflation surges to highest level since 1991

The U.S. Department of Labor reported the inflation numbers for June yesterday. Before seasonal adjustments, the Consumer Price Index for All Urban Consumers (CPI-U) rose 1.01% in June over May and was 5.02% higher than June 2007. Core CPI (CPI less food and energy) before seasonal adjustments was up by 0.17% compared to May and up 2.41% compared to a year ago. Seasonally adjusted, CPI-U rose 1.06% over May versus expectations of 0.7% and core CPI rose 0.32% instead of 0.2% expected by economists.

The surge in CPI-U was due to energy prices. Energy increased 6.6% in June over May. So far the rises in food and energy have not translated to surges in core CPI.

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PPI surges higher in June

The Bureau of Labor Statistics released the Producer Price Index for Finished Goods (PPI) today. Seasonally adjusted, PPI increased by 1.79% in June 2008 compared to May. PPI was 9.06% higher than a year ago, which is the highest PPI has been since 1981. The median analyst expectation for month over month PPI was 1.4%. Core PPI (PPI less food and energy) was up 0.24% compared to May and was 3.09% higher than a year ago. This is the highest core PPI has been since 1991. The median analyst expectation for month over month core PPI was 0.3%. Inflation pressures continue to rise even as the economy is weakening.

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Inflation for May is not bad if you don't drive

The U.S. Department of Labor reported the inflation numbers for May today. Before seasonal adjustments, the Consumer Price Index for All Urban Consumers (CPI-U) rose 0.84% in May over April and was 4.18% higher than May 2007. Core CPI (CPI less food and energy) before seasonal adjustments was up by 0.06% compared to April and up 2.31% compared to a year ago. Seasonally adjusted, CPI-U rose 0.65% over April versus expectations of 0.5% and core CPI rose 0.20% the same as expected. "Not a bad number if you don't drive," quipped Meny Grauman, an economist for CIBC World Markets.

The Fed is starting to talk tough on inflation. Earlier this week, Fed chief Ben Bernanke said "The latest round of increases in energy prices has added to the upside risks to inflation and inflation expectations." He also said that the Fed would "strongly resist an erosion of longer-term inflation expectations." The Fed is facing a dilemma; inflation is poking its ugly head and the economy is running at a slow pace. Inflation has yet to rise in the core numbers, but inflation is making its presence felt.

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The Fed Minutes Spook the Market

The Federal Reserve's April meeting minutes were released today. They believe that the threat of the credit crisis has dissipated.

Although participants anticipated that further improvement in market conditions would occur only slowly and that some backsliding was possible, the generally better state of financial markets had caused participants to mark down the odds that economic activity could be severely disrupted by a further substantial deterioration in the financial environment.

The TED spread has lessened in recent weeks to under 1%, the lowest it has been since July 2007.

However, compared to January, the Fed's forecast has changed considerably. The projections of the Federal Reserve Governors and Reserve Bank Presidents for real 2008 GDP growth now range from 0.0% to 1.5% (down from 1.0% to 2.2% in January). The projections for the Unemployment rates range from 5.3% to 6.0% (was 5.0% to 5.5%). The projections for PCE inflation ranges from 2.8% to 3.8% (was 2.0% to 2.8%). The Core PCE inflation projections range from 1.9% to 2.5% (was 1.9% to 2.3%).

Due to the improvement in the Financial markets and the threats of inflation, the Fed signaled that they are probably done with the rate cuts. The possibility of the rate cuts combined with the gloomy economic projections spooked the markets today.

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Inflation spikes up in the core PPI numbers

The Bureau of Labor Statistics released the Producer Price Index for Finished Goods (PPI) today. Seasonally adjusted, PPI increased by 0.17% in April 2008 compared to March and was 6.40% higher than a year ago. Core PPI (PPI less food and energy) was up 0.30% compared to March and was 3.04% higher than a year ago. This is the highest core PPI has been since 1991.

Part of the reason for the drop in PPI and the rise in the core PPI was the seasonal adjustments. The Non-seasonally adjusted PPI was up 0.74% compared to March 2008 and up 6.51% compared to a year ago. The Non-seasonally adjusted core PPI was up 0.30% compared to March 2008 and up 3.04% compared to a year ago.

Inflation is at an interesting crossroads. Will inflation creep into the core numbers excluding the increases in food and energy? Or will the slowing economy dampen inflation as it typically does during recessions. The wild card is the global economy. In the past, the world was dependent on America and the world would catch a cold if the U.S. sneezed. Now the roles are reversing; we are watching China and OPEC to see what will happen to prices.

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CPI for April rises less than expected

Today, the Bureau of Labor Statistics released the Consumer Price Index (CPI) figures for April. Before seasonal adjustments, the Consumer Price Index for All Urban Consumers (CPI-U) increased by 0.61% over March 2008 and by 3.94% compared to April 2007 and core CPI-U (less food and energy) increased by 0.09% over March 2008 and by 2.26% over April 2007. With seasonal adjustments, CPI increased by 0.21% over March 2008 and by 3.88% compared to April 2007 and core CPI-U (less food and energy) increased by 0.10% over March 2008 and by 2.27% over April 2007. Economists had forecast that CPI would rise by 0.3% and core CPI would rise by 0.2%.

Inflation continues to be one of two tales. Core inflation looks to be contained whereas inflation including food and energy prices remains high.

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CPI for March increased moderately

The Consumer Price Index for All Urban Consumers (CPI-U), not seasonally adjusted, increased 0.87% in March compared to February the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The March level of 213.528 was 3.98% higher than in March 2007.

Inflation typically goes down during recessions as the slowdown in the economy affects demand. However, the price of oil and the inflationary pressures China is applying is counterbalancing this tendency. The weakening dollar is also making imports more expensive and is causing prices to rise. It remains to see how this tug-of-war will play out.

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PPI for March Surges Ahead

The Producer Price Index for Finished Goods (PPI) seasonally adjusted increased by 1.09% in March compared to the previous month and 6.93% compared to last year. Core PPI (less food and energy) increased by 0.24% compared to February 2008 and 2.80% compared to March 2007.



April looks rough already. Crude oil and Gasoline futures reached record highs today. In the past twelve months, sugar prices are up 27%,Corn prices have surged 67% and wheat prices have shot up 73%. Inflation is still raising its ugly head in the face of a recession when inflation pressures usually fall with the slowing economy.

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PPI for February remains high

The Bureau of Labor Statistics released the PPI numbers today. PPI took a back seat to Lehman and Goldman’s earnings, the rate cuts, and the resurgent stock market.



PPI rose 0.35% (4.15% annualized) over last month and 6.75% year over year. Core PPI rose 0.55% (6.59% annualized) over last month and 2.49% year over year. PPI has paused around the 7% range. Core PPI has surged in the last two months. It will be important to see what happens with inflation if we are entering in a recession. Often a slowdown will lead to a drop in inflation. However, this time around international pressures like the surging inflation in China and the hot commodity prices may keep the pressure on.

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CPI for February is unchanged from January

The Bureau of Labor Statistics released the CPI numbers for February 2008 today. After Seasonal Adjustments, CPI was 4.121% higher than February 2007 and Core CPI was 2.279% higher than a year ago. Compared to last month after seasonal adjustments, CPI was basically unchanged. CPI rose only 0.026% from January 2008 and Core CPI rose 0.040%.

Looking at inflation on an annual basis, Core CPI is still at the high end of the Fed’s comfort level, but it has not spiked up. The weakening of the dollar should continue to put pressure on commodity prices especially imported commodities.

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PPI surges higher; Stagflation whispers are getting louder

Stagflation whispers are starting to be heard. Per Google Trends, news references to stagflation reached a 3 year high this week. Google searches this week for stagflation were topped only when Greenspan warned that stagflation was a possibility in December 2007.

Stagflation refers to a stagnant economy and inflation coinciding. Typically as the economy heats up, inflation will start to pick up. The Fed can then raise rates to slow the economy down and inflation with it. Or vice versa, lowering rates would stimulate the economy at the risk of inflation. Currently we have the economy starting to slow down with inflation appearing to pick up steam.

The Bureau of Labor Statistics reported the Producer Price Index (PPI) this Tuesday. PPI is a measure of the average price level for capital and consumer goods received by producers. This measures price changes before they are passed on to consumers.


The PPI for Finished Goods rose 0.99% in January 2008 over December 2007. PPI rose 7.71% January 2008 compared to January 2007. Core PPI (excluding food and energy), rose 0.43% month over month and 2.37% year over year. PPI is much more volatile than CPI. It also leads CPI. Price increase are not immediately passed on to consumers. However CPI does seem to follow the patterns formed by a 24 month average of the core PPI. Increases in PPI will eventually turn into increases in CPI; the same with decreases.

Most of the recent surge coming from increases in food and energy. However, if there isn’t a quick reversal, it looks like core PPI and core CPI will be heading up as well.

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The Consumer Price Index shows inflation is rising to an uncomfortable level

The U.S. Department of Labor released the Consumer Price Index today.

The Consumer Price Index for All Urban Consumers (CPI-U) for January 2008 increased 0.497% from the previous month before seasonal adjustments. Compared to January 2007, CPI-U increased by 4.280%. Core CPI (CPI without food or energy components) increased by 0.368% compared to December and 2.466% compared to January 2007.

Food and beverage prices increased by 0.919% compared to the previous month. Energy prices increased by 0.901% compared to the previous month.

Core CPI strips out the volatile swings of food and energy prices. As discussed in this previous post on CPI, if the food and energy price changes don’t reverse, then the price changes will creep into CPI. The core CPI is at the high end of the Fed’s comfort range.

Consumer Price Index data for February 2008 are scheduled for release on Friday, March 14, 2008, at 8:30 A.M. (EDT).

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CPI finishes 2007 at 17 year high

The Consumer Price Index data was released today. Consumer prices rose the fastest in 17 years. This is when looking at year end data. Consumer prices did rise faster in 2005 and 2006 during the middle of the year but finished the year at a slower pace than this year.

Consumer prices rose 4.12% in December 2007 compared with December 2006 led by higher energy prices which rose 17.4%. Food was up 4.9%. Excluding energy and food, core CPI rose 2.43%. While the Fed does not have an explicit CPI target, it does appear to have a comfort zone for inflation in the range of around 1% to 2% or 2.5%.

Energy and food, which are historically volatile, are often stripped out to form core inflation. Changes in energy and food prices are thought to often not persist long-term. For example, bad weather leading to high food prices for one season will not lead to permanent higher prices.

However, when the prices are elevated or suppressed for long periods, the higher costs of energy and food do creep into core CPI. For example if gasoline prices go from $2 to $3 dollars and stay that way for a long time, the increased costs for business will eventually be passed on to the consumers.

Here are two charts on CPI. The first one compares CPI and core CPI (CPI without energy and food).

Notice how Core CPI does tend to lag CPI during periods where CPI is trending up or down. The higher energy and food prices do not immediately translate into higher CPI. There seems to be a 4-12 month lag.

The second graph shows CPI moved 6 months into the future (December 2007’s CPI numbers are plotted as June 2008 numbers, etc.).

If higher energy costs persist, core CPI will face upward pressure. This could complicate the Fed’s balancing act with inflation and the condition of the financial market.

January 2008 CPI data are scheduled to be released on February 20, 2008, at 8:30 am Eastern Time.

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CPI jump stokes inflation fears

From Marketwatch:

Consumer inflation increased at the fastest pace in more than two years in November, and analysts said the report wouldn't sit well with the Federal
Reserve.

Consumer prices rose 0.8% in November, led by higher prices for gasoline, the Labor Department reported Friday.

But energy wasn't the entire story. Prices of apparel, drugs, housing, and airline fares also spiked. As a result, core inflation, which excludes food and energy prices, rose 0.3%, its biggest advance since January.

The figures raise concern that inflationary pressures are increasing and could limit the room for the Fed to cut interest rates to counter the expected economic slowing over the next few quarters.
…
The numbers were worse than expected. Economists were forecasting the CPI would climb 0.7% and the core rate would rise 0.2%, according to a survey conducted by MarketWatch.

Barry Ritholtz at The Big Picture puts yesterday’s retail sales in perspective:

Oh, and those Retail sales yesterday? Let's do some quick math: The monthly nominal sales data of plus 1.2%, when adjusted for inflation, was a much more modest 0.4% real. The huge 6.3% year-over-year surge I mentioned? Try a real number of 2%, after the 4.3% annual inflation.

Here are the CPI-U charts, with and without food and energy. Click on the graphs for a larger image.

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