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Inflation At 17-Year High

Wow! Big pop in inflation last month: July CPI rose 0.8% headline, 2X consensus expectations as  food, energy, airline fares and -- of all things, clothing apparel -- rose in price. 

The meaningless core rate rose 0.3%, 0.1% more than expected. Year over year price increases are 5.6% -- the biggest monthly gain since gains January 1991. Risers include 1.2% gain in apparel (14,4% annual!), 0.4% gain in recreation, 1.2% gain in tobacco and a 1.3% gain in airline fares.

Energy prices rose sharply in July, tagging on another 4%; gasoline gained 4.1%, while natural gas surged 7.4%. Food prices saw a 0.9% rise, and "food at home"increased 1.2%.

Apparel has been one of those few sectors that have seen downward pricing pressure over the past few years, so this is somewhat surprising -- and perhaps aberrational. Services inflation (ex energy) rose 0.3%. Annualize the 0.8% monthly gain and its 9.6% (this is not accurate due to significant seasonal variations in July)

The headline number should recede in coming months due to the decline in oil and commodity prices, we still have a up big year over year gain across the board. The WSJ noted that the "surprising rise in core inflation that excludes food and energy last month will keep officials on edge about the possibility that food and energy prices will become more firmly entrenched in the economy."

In normal economic cycles, recessions typically bring about a deflationary environment. One would expect to see significant demand destruction as the economic contraction continued, impacting prices negatively and moderating inflation. While that demand destruction appears to have occurred in Crude Oil and a few other commodities, it has yet to happen across other goods and services.

There remains the outside possibility that this will be an inflationary recession -- let's hope otherwise.

Charts via Jake at Econompic

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Sources:
Consumer Price Index Summary
CONSUMER PRICE INDEX:  JULY 2008
http://www.bls.gov/cpi/
http://www.bls.gov/news.release/cpi.nr0.htm

U.S. Inflation Hits 17-Year High As Increases Move Beyond Food, Oil
BRIAN BLACKSTONE
August 14, 2008 9:55 a.m.
http://online.wsj.com/article/SB121871617494640459.html

U.S. Consumer Prices Rose More Than Forecast in July
Shobhana Chandra
Bloomberg, Aug. 14  2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aL2cNvLZtzMg&

Thursday, August 14, 2008 | 10:17 AM | Permalink | Comments (36) | TrackBack (1)
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Comments

BR, do you really hope otherwise? At the risk of triggering indignation, it's pretty clear that the MAJORITY of people who populate this blog would absolutely LOVE a steady stream of stagflationary developments that send the markets much lower. I mean, c'mon, this blog has a lot of gold, canned preserves and ammo storing types of people on it. And that's fine. But it's hard to believe someone who is positioned bearishly is not hoping for bearish news.

Posted by: Eric | Aug 14, 2008 11:37:23 AM