Chart of the Week: Yr/Yr Change CPI with 12 month moving average

Wednesday, June 21, 2006 | 11:15 AM

Market technician John Roque has, for quite some time now,  not believed the Fed would be pausing anytime soon. His chart below shows the year/year % change in the CPI. What is significant about it is that four of the prior five times this indicator has moved above the average (3.85%) it has worked to, at least, the 6% area. Inflation doesn’t usually peak until the 12-month moving average (darker line) rolls over. That hasn’t happened yet, implying inflation has more to run.


Yr/Yr Change CPI with 12 month moving average


Source: John Roque, Natexis Bleichroeder


Roque his fond of saying that “pause is a button on your DVD player and not an option for the Fed because we feel inflation is going higher than you expect.”


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Wednesday, June 21, 2006 | 11:15 AM | Permalink | Comments (16) | TrackBack (0) add to | digg digg this! | technorati add to technorati | email email this post



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I would lend more credence to ECRI's forecasting than a single linear measure like Mr. Roque's. I love his work, but ECRI's credibility on forecasting CPI is second to none and they are now looking a potential peak over the next couple of quarters. Of course, that means that the numbers will be ugly over the next few months and the Fed will likely have to raise rates higher than they prefer for political reasons. And people wonder why the Fed almost always overshoots!

Posted by: James | Jun 21, 2006 10:02:12 AM

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