Except for Inflation, there's no Inflation

Friday, September 16, 2005 | 07:29 AM

So let me make sure I completely understand this: If we back out all of the inflationary data from the CPI, and PPI, there is, um, no inflation? 

Thanks for clarifying that.

While the Dismal Set -- and the majority of CNBC guests -- continue to spout such foolish nonsense, its nice to see that at least the WSJ wasn't bamboozeled. Their online headline read:  Consumer Prices Climb 0.5%

"Gasoline prices shot up 8.3%, the biggest increase since February 2003. Food prices, however, were unchanged for the first time in nine months. Medical-care prices were unchanged after nearly 30 years of increases. Housing prices grew more slowly in August, falling to a 0.2% rate from 0.4% in July. Automobile prices fell 0.5%, half the rate of decline recorded in July."

You can see more from the dismal set below . . .

UPDATE I: September 16, 2005 10:54 am

Its the ultimate Hedonic adjustment:  Chart of the Day shows us graphically that without the items that are going up in price, there is hardly any inflation at all! 


UPDATE II: September 17, 2005 11:54 am

The first official chart from the weekend WSJ:


UPDATE III: September 24, 2005 2:54 pm

Here's a round up of all our recent discussions on inflation

Consumer Prices Climb 0.5%
Katrina Helps Propel Jobless Claims
To Highest Level in Nearly 10 Years
WALL STREET JOURNAL, September 15, 2005 5:44 p.m.

Consumer prices rose 0.5% in August, but excluding volatile food and energy costs, the core inflation rate held steady at 0.1%. Economists, who weren't surprised by the numbers, weighed in on the post-Katrina inflationary effects of energy prices and what the trends might mean for the Federal Reserve's meeting on interest rates next week. Following are a handful of economists' reactions.

Please name the few Economists you think make some sense, based upon their quotes, in the comments section (below).

Core consumer inflation appears to have peaked after rising for most of the past 18 months.
-- Steven Wood, Insight Economics

* * *
[P]rospects for a reversal of recent energy-price increases and the absence of other fundamental inflationary pressures indicates inflation provides no significant justification for raising interest rates further at this time.
-- Peter Morici,University of Maryland

* * *
[W]hile core inflation could well inch up in the coming months, particularly as some of the recent surge in energy prices leaks through, it is unlikely to accelerate by enough to scare the Federal Reserve into a more aggressive tightening mode. We continue to think that a trend of [quarter percentage point] tightening moves are likely at upcoming Federal Open Market Committee meetings (although the aftermath of Hurricane Katrina could cause a temporary pause in the process).
-- Joshua Shapiro, MFR Inc.

* * *
[We] are still concerned about the potential for either energy price pass-through or higher inflation expectations becoming embedded in the economy as a result of high gasoline prices.
-- John Ryding, Bear Stearns

* * *
Since more than 90% of the prices in the August survey were collected before Hurricane Katrina struck, the September and October headline CPI numbers will likely be even higher. ... Given recent increases in airline ticket prices and the increasing ability of shippers and truckers to pass on higher fuel prices, we will likely see an acceleration of core inflation in the next few months. ... Currently Global Insight predicts that the Fed will take a breather in one or both of the next two meetings, before resuming its tightening cycle.
-- Nariman Behravesh, Global Insight

* * *
[T]he headline CPI could be up as much as 0.8% in September mainly because of surging prices at the gas pump. ... We expect to see only a slight uptick [in core inflation] in coming months partly reflecting a reversal of the [downside] quirk in hotel rates. ... [W]e look for the core CPI to reach +2.7% by the end of 2006 as some of the recent energy spike is gradually passed through to prices of other goods and services.
-- David Greenlaw, Ted Wieseman, Morgan Stanley

Economists React
Wondering When Energy Costs Will 'Leak' Into Core Prices
September 15, 2005 11:04 a.m.

Friday, September 16, 2005 | 07:29 AM | Permalink | Comments (22) | TrackBack (2)
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» Who cares about core inflation? from Econbrowser
This is another one of those months when you could report pretty much any number you like to summarize the current inflation rate, and, as William Polley noted, new... [Read More]

Tracked on Sep 16, 2005 5:19:07 PM

» Who cares about core inflation? from Econbrowser
This is another one of those months when you could report pretty much any number you like to summarize the current inflation rate, and, as William Polley noted, new... [Read More]

Tracked on Sep 16, 2005 5:30:42 PM


real average hourly earnings fell 0.5% and are down 1.1% from a year ago. Real total income growth had been positive but is likely to turn negative over the next few months.

If you are going to look at the impact of higher energy prices on the economy you need to look at the overall
inflation rate.

Moreover, it is the overall inflation rate, not core inflation that determines inflation expectations that fees into the wage setting mechanism.

If the Fed is going to keep higher energy prices from leading to higher overall inflation it needs to generate sufficient economic weakness to offset the impact on inflation expectations.

Posted by: spencer | Sep 16, 2005 8:44:33 AM

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