"Economists are pessimists: they've predicted 8 of the last 3 depressions."
--Barry Asmus

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Thursday, August 18, 2011

Consumer Price Index

Yesterday, we got to see what inflation is doing to consumers.  Now, it's our turn.  It's time for the CPI, and that means inflation.
Well, technically it could also mean deflation.  But nobody really expects that, because the Fed distinctly dreads and detests deflation[1].  And also because, low interest rates notwithstanding, there is a huge sum of money sitting out there waiting to roll out and transform our economy.
June's inflation results were, and I seem to be saying this a lot, a mixed bag.  Headline inflation - the Consumer Price Index for All Urban Consumers (or CPI-U) - declined 0.2%, which was right in line with expectations.  Core inflation - the CPI-U sans food and energy - increased 0.4%, which was twice the expected increase.  Most of the decline in headline inflation was driven by declining energy costs, as energy CPI dropped 4.4%.  All of which meant that, looking at the rolling year, CPI-U increased 3.6%, core CPI-U increased 1.6%, food CPI increased 3.7% and energy CPI increased 20.1%.
So that was June.  For July, the Econoday-surveyed analysts are feeling a little bearish.  They're calling for a 0.2% increase in CPI-U, and a 0.2% increase in core CPI-U.  But, to find out if they're right, we turn to the Consumer Price Index Summary from the Bureau of Labor Statistics.  And, wow.  They weren't bearish enough.
CPI-U increased 0.5% in July, badly missing expectations, driven by a 0.4% increase in food CPI-U and a 2.8% increase in energy CPI-U.  For what it's worth, core CPI-U hit right in line with expectations, coming in at a 0.2% increase.  So yes, the Fed will say that inflation is only 0.2%.
For the rolling year, CPI-U is still up 3.6%, core CPI-U is up 1.8%, food CPI is up 4.2%, and energy CPI is up 19.0% (with gasoline up 33.3%).
So, yeah.  The markets probably won't be happy with this.  Let's see if First Time Jobless Claims improve their mood.
[1]  Say that ten times fast.  I dare you . 

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