What? Inflation?

Thursday, June 07, 2007 | 06:46 AM

Okay, so here's the "Official" explanation: the selloff over the past few days is courtesy of this new-fangled discovery called INFLATION. That's why rates have ticked higher.

You see, we have been living in a benign non-inflationary environment, and just yesterday, it seems that some traders have discovered that -- WTF?! -- prices of goods and services are rising.

Of course, many pundits, traders and investors -- and a goodly part of the Federal Reserve -- have convinced themselves that there really wasn't any inflation, so long as we wear blinders and ignore those pesky goods and services like Food and Energy. You know, those annoying items utterly necessary for survival.

That's been the f@#ktard explanation, anyway. If you believe it, though, you must be living in a cave -- which given the market for bat guano and stalagtites, probably has achieved the elusive Fed goal of price stability.

Bill King notes that:

For April 2007, the monthly food cost is $1044.80 for average family of four, per the USDA.

For April 2006, the monthly food cost is $995.40 for average family of four.  Ergo y/y food inflation is 4.963% according to the USDA.

The BLS has ‘food’ inflation (urban) at only 3.7% y/y (unadjusted) for April 2007. Ergo, there is a 34% discrepancy in food inflation reporting between US Government Agencies – the USDA and BLS.

This story from May 24, 2007
went largely unnoticed:  Reuters reports, “The Federal Reserve's adherence to core inflation, which strips out food and energy prices, is taxing the public's patience and  risks credibility, a senior U.S. central banker said on Thursday.

‘In the United States over the last 20 years, core measures excluding food and energy did take out a lot of noise. But in the last three years it has been extracting quite a bit of signal,’ said Harvey Rosenblum, head of research at the Federal Reserve Bank of Dallas.”
( emphasis added)

Meanwhile, the rest of the world continues to raise their interest rates to fight inflation.


The Chicago Sun-Times was kind enough to include this table of food price increases:



Here's a sampling of where food prices are heading across the nation:

National average prices April 2007 April 2002 April 1997
White bread (pound) $1.20 $1.00 $.86
Ground beef (pound) $2.25 $1.78 $1.38
Bacon (pound) $3.50 $3.26 $2.66
Whole chicken (pound) $1.12 $1.11 $1.00
Eggs (dozen) $1.62 $1.05 $1.08
Milk (gallon) $3.14 $2.78 $2.61
Butter (pound) $2.86 $3.20 $2.18
Ice cream (half gallon) $3.79 $3.72 $2.90
Red delicious apples (pound) $1.10 $.91 $.90
Bananas (pound) $.52 $.50 $.52
Navel oranges (pound) $1.24 $.75 $.60
Iceberg lettuce (pound) $.99 $1.15 $.67
Tomatoes (pound) $1.63 $1.32 $1.35
Frozen orange juice (12 oz.) $2.52 $1.89 $1.73
Sugar (pound) $.51 $.44 $.44
Peanut butter (pound) $1.75 $1.98 $1.81
Coffee, ground roast (pound) $3.44 $2.98 $3.89
Potato chips (16 oz.) $3.48 $3.29 $3.18

Source: U.S. Department of Labor, Bureau of Labor Statistics




Blame your bill on corn, weather
Chicago Sun-Times, June 6, 2007

Labor Costs Get Hard to Control
WSJ, June 7, 2007; Page A2 

Core inflation testing Fed credibility -Dallas Fed
Alister Bull
Reuters, Thu May 24, 2007 5:29PM EDT

Years of Global Growth Raise Inflation Worries
WSJ, June 6, 2007; Page A1

Bernanke's Sense for Now: Hands Off
WSJ, June 6, 2007; Page A2   

Thursday, June 07, 2007 | 06:46 AM | Permalink | Comments (52) | TrackBack (2)
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» Inflation and the Fed from Quantitative Contemplations
I agree with Barry regarding the many pundits, traders, and investors that have convinced themselves that there really wasn't a reason to worry about inflation (just look at the stock market action of the past few months), but I disagree that many Fede... [Read More]

Tracked on Jun 7, 2007 10:04:58 PM

» It's A Low, Low, Low, Low Medium-Rate World from The Big Picture
I would be remiss in my duties if I failed to point out that this recent run up in yields -- fundamental explanation here -- occurred a few short months after the cover of BusinessWeek declared: It's A Low, Low, Low, Low-Rate World Back in November, I ... [Read More]

Tracked on Jun 9, 2007 2:13:09 PM


"Inflation is the cruelest tax of all" (quote yet do not have source) that impacts those with less income in a manner greater than those with great incomes. I too am growing tired of the constant droning from government officials that is in fact intellectually dishonest especially with inflation.

Some examples -

1 - Inflation reality vrs inflation reported when food and energy is included.
2 - Unemployment including structural unemployed, those left workforce on a permanent basis and the uncounted illegal workers that are not longer working. (Illegal worker comment supported by Latin American remittance that are weakening - less employment less remittance back home)is greater when the definition is expanded.
3 - GDP Estimate by current White House Team "Still strong, rebounding and estimated growth rates of 2006 for each of the remaining quarters. Really...I guess the LEI are telling that story? Hummm....cough, cough...
4 - Housing and the REVERSE wealth effect will not impact consumer spending. Humm...Seems to me the argument was made the other way when home prices surged.

So, I put all this together with the Food prices and all of this validates that one must think for themselves as well as read the core data without the spin cycle.

Posted by: Jrs | Jun 7, 2007 8:25:32 AM

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