US Inflation Miracle Continues
The BLS reported that prices rose modestly in April, below consensus expectations.
The usually Bullish Michael T. Darda of MKM Partners was rather skeptical of the data:
From the CPI report, “In April, the index for petroleum-based energy fell 1.6%, offsetting a 2.5% increase in the index for energy services. The transportation index declined 0.7% in April, reflecting a 2.0% decrease in the index for gasoline.” And to top it off, the index of commodity prices rose just 0.1%.
Huh? Gasoline prices rose by about 10% in April. Virtually every index of commodity prices is near all-time highs (and up about 30% since the beginning of the year). I’m not sure what the BLS is smoking here, but it must be pretty strong stuff.
I have to agree.
As the chart below shows, Inflation ex "everything except personal computers, apparel, and household furnishings" is looking great!
Charts by Jake
The easy way to disregard seasonal adjustments is to look at unadjusted year over year changes.
As reported by the BLS for April 08 vs April 07:
Fuels and Utilities.............8.6%
Household
Eneregy...............9.4%
Fuel oil and other fuels.......42.8%
Gas
(piped) and electricity.....6.6%
Wednesday, May 14, 2008 | 09:07 AM | Permalink
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What do you want? A 10% cost of living adjustment on SS?
Posted by: Tom C | May 14, 2008 9:17:05 AM
We know what they're smoking... U.S Dollars. Oh, strong stuff, you say? Scratch that
Posted by: RichardN | May 14, 2008 9:17:35 AM
It is the power of positive thinking at fed and the BLS, helping keep the inflation tame.
Media is delutional and bloggers are just smoking light-crude.
Posted by: Nihilism | May 14, 2008 9:19:31 AM
95% of this country population uses only one half of the brain in a best case.
Or at least this is what the worthless idiots at BLS think of us.
What a pile of bull crap!!!
http://biz.yahoo.com/ap/080514/economy.html
Posted by: sergtat | May 14, 2008 9:21:07 AM
They are thinking positively.
Like that old Neil Young song intro, I imagine the BLS people chanting "No rain, no rain..."
Posted by: mhm | May 14, 2008 9:21:33 AM
If Michael had spent a few minutes reading some sell side economic research he would have known before the release that the increase in gas prices this April was less than typical seasonality.
Whether this is accurate or not is another issue altogether of course.
Posted by: Vermont Trader | May 14, 2008 9:23:36 AM
The "Index" for petroleum-based energy? What Index? The one that's tied to the cost of a fill-up on my amex week-to-week sure hasn't fallen 1.6%
Do they cite their data points? Commodity prices up .1%? Laughable. Maybe commodities ex-oil-soy-rice-ng-corn. Perhaps wheat is overweighted in their index. Probably 90% of it.
Who holds these guys accountable? More to the point, does anyone actually take them seriously when they publish?
Posted by: CPJ | May 14, 2008 9:28:56 AM
Barry,
I would like to see cpi/ppi as well as payroll/unemployment, using the same methodoly the uk/germany uses....any ideas where?
Posted by: pjfny | May 14, 2008 9:31:16 AM
forgot one question:
How can germany/uk have higher headline inflation with a strong currency than the us with a weak currency......what happens to the 15% import price yr/yr increase we saw yesterday (after all we are the biggest importing nation in the world)....only two answers: it will leak into cpi or squeeze corporate margins!
Posted by: pjfny | May 14, 2008 9:35:29 AM
Howard Simons over on Realmoney put up an excellent piece on the COT report's lack of rigor regarding speculators ect ..nice job as most of his work is... http://www.thestreet.com/p/_tscs/rmoney/commodities/10416527.html
Posted by: brasil | May 14, 2008 9:38:04 AM
Barry,
I have been reading 'big picture' for several months. Every time when government releases CPI or PPI, you just criticize the data being inaccurate (understated). Yet market seems to like it and just keeps going up. I wonder if you could point out exactly what is wrong with the data and maybe reconcile it with BLS or FED. Why can't we get on the same page after all?
Posted by: JXU | May 14, 2008 9:39:08 AM
Saw this over at Yahoo...
"Since gasoline prices normally rise significantly in April, the 5.6 percent rise in prices for the month turned into a 2 percent drop after the government adjusted for normal seasonal changes."
So when I go to the station I'll pay the reduced price? I think I'm going to "seasonally adjust" my tax return next year.
Posted by: Robert- | May 14, 2008 9:39:40 AM
Vermont Trader alluded to this earlier. According to an analyst at Dresdner Kleinwort (via Bloomberg), the increase in gasoline prices in April was less than the typical seasonal increase in past Aprils.
Source: http://www.bloomberg.com/apps/news?pid=20601087&sid=aMBZ_Ci6ZHJg&refer=home
I don't have the resources to plot a 5 or 10 year chart of wholesale gasoline prices or average retail gasoline prices but my gut would say that the explanation is total bunk. Can anyone with a Bloomberg terminal back me up?
Posted by: Mike J | May 14, 2008 9:41:52 AM
I believe that the UK CPI and Europe's Harmonized CPI are pretty analogous to US CPI in terms of methodology. UK RPI is the old style (US) CPI index. The biggest difference between UK CPI and RPI is the way these two indices treat housing. Owner's equiv rent and all that good stuff. The issue of quality improvements and substitution is differently treated in Europe. Substitution is used but quality adjustements to price is not done like in the US. For basis of comparison, use CPI (US and UK) and harmonized CPI in Europe.
Posted by: ReturnFreeRisk | May 14, 2008 9:42:15 AM
The drop in gas was from the seasonal adjustment. The question is, if the prices aren't seasonal then either a)the CPI should take a hit in fall when that adjustment is removed or b)we have to question the applicability of the adjustment in the first place.
Posted by: Andrew | May 14, 2008 9:42:58 AM
Let's see the average seasonal adjustment factor of the past 27 years has been 4.1% (link to that chart in post)
So the BLS decides to use a factor of 7.5%???? to crush the NSA number of +5.6 to a -1.9
Sadly it's understandable when you think how the x12 program works. It's feeding the past 5-6 years of data in and confusing two trends.
1. the seasonal trend of around 4%
2. the secular trend of the last 6 years where gas is straight up (BTW: that isn't seasonal !)
Posted by: Michael Donnelly | May 14, 2008 9:47:18 AM
See my comment on the last post...but boys and girls...this is typical stagflation a la Arthur Burns...wages actually FELL .5% last month and the CPI, went up at least .2%...no matter whose numbers you believe...so "REAL" inflation for the wage earner is .7% at a minimum for last month...
Good luck we will all need it.
Bruce in Tennessee
Posted by: bruce | May 14, 2008 9:47:36 AM
"the market seems to like it"
See rabid futures buying for the reason it "likes it"
Sorry but continuing to celebrate higher costs (all around) is no reason to buy equities.
It is for some though.
These numbers are worthless
Oh I see that Freddie lost "less than the kitchen sick" so no wonder the futures were up. Pathetic.
Ciao
MS
Posted by: michael schumacher | May 14, 2008 9:49:00 AM
Hopefully, y'all have plenty of bullets left and can initiate more shorts on this BS.
Posted by: CaptiousNut | May 14, 2008 9:49:20 AM
You know, I'm starting to wonder if we're all living in Truman's World ... remember the movie "The Truman Show".
I'm no fan of conspiracy, but do the powers that be, think we're all stupid.
Posted by: Donny | May 14, 2008 9:51:17 AM
Again we have the issue of seasonally adjusted vs. non-seasonally adjusted. SA CPI was .2%, but NSA CPI was .6%. As it happens the inflation rate for the first 4 months this year is exactly the same as it was last year (and I'd post it all but the BLS site is apparently overwhelmed and every time I try to access it, it crashes).
Anyway, of immediate interest is that the rate of food inflation has declined significantly since its peak a few months ago (i.e., food prices are still going up, just not as much). This means that the current slowdown is following the pattern of previous oil-shock slowdowns, where food inflation peaks first, sometimes even before the onset of recession, and energy inflation typcially peaks 3-6 months into the recession.
The question now is, does the rest of the world slow down enough that parabolic oil prices break down?
Posted by: ndd | May 14, 2008 9:55:43 AM
And right on cue the markets bounced up. These CPI numbers are such total nonsense why is anyone paying any attention to them. The average Joe on the street thinks they are bs so why aren't the professionals. Or is it just low volumes and programmed trading. You have to wonder.
Posted by: jJohn | May 14, 2008 9:56:43 AM
I think they are smoking that Tie Stick...
You know, that bud that's tied to a stick! My mama always yelling tryin to tell me how to live..da na na na na na da da da ! Maui waui man!
Posted by: UrbanDigs | May 14, 2008 9:58:55 AM
This market is going higher regardless of datapoints. All news is good right now. Debates about market data mean nothing. If the Inflation numbers were bad, the market still closes green.
Small Caps going to new highs in July.
Posted by: Jim | May 14, 2008 10:02:21 AM
Using the California Dept of Energy's numbers for the past ten years and averaging the weekly branded retail number for each month, the average increase from March to April is 8.3% with a standard deviation of 9.3%.
Anecdotally (and in NJ, not CA), price of gasoline is up 15-20% from March to April.
CA DoE source: http://www.energy.ca.gov/gasoline/margins/index.html
Posted by: Mike J | May 14, 2008 10:03:51 AM
