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Inflation? What Inflation? (Part II)

Friday, December 14, 2007 | 10:18 AM

in Consumer Spending | Economy | Federal Reserve | Inflation | Retail

Shorter BLS:

"The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.6 % in November before seasonal adjustment. The November 2007 level of 210.177 (1982-84=100) was 4.3% higher than in November 2006.

The Consumer Price Index for Urban Wage Earners and Clerical Workers (CPI-W) increased 0.8% in November (prior to seasonal adjustment). November level of 205.891 was 4.6% higher than in November 2006."

The 0.8% gain was the largest since Hurricane Katrina's boosted CPI in September 2005. That was obviously a weather induced number, and you need to go all the back to January 1990 to find a comparable CPI price increase. And the so-called Core? 0.3% gain was the most since June 2001.

Miller Tabak's Peter Boockvar adds: "The implied inflation in the 5 year TIPS mkt has moved up to 2.26% from 2.23% yesterday and 2.15% a week ago. The 10 yr bond yield is now at a one month high. An aside, the CRB index yesterday closed less than 2% off its all time record high." [BR: Peter corrected his earlier email -- thats 3% from Wednesday's close]

Nah, there is no inflation anywhere in the system. Where would anyone get an idea like THAT from? Just because Oil went from $18 to $95, home prices doubled over 7 years, and milk is now $4.29 a gallon doesn't mean there's any inflation. So what if the year-over-year wholesale prices (finished goods) was up 7.3% ! So what if Consumer prices rose 4.3% year-over-year from November 2006!

So, what do these inflation figures really mean?

Well, you can forget about a half point cut anytime soon -- at least until the Fed has gone from nervous to scared $#@tless. That's how you know they are in full blown panic mode.

~~~

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.

One last thing: Now factor in an extra week of post-Thanksgiving sales, given how early the holidays were this year versus last.

I got your Polyanna's booming holiday shopping right here.

~~~

Yearly changes tend to smooth out more severe monthly fluctuations and give a better idea of the underlying rate of inflation:

chart courtesy of Barron's

Sources:
CONSUMER PRICE INDEX: NOVEMBER 2007
U.S. Bureau of Labor Statistics, December 14, 2007 8:30am
Division of Consumer Prices and Price Indexes
http://www.bls.gov/news.release/cpi.nr0.htm