Loading ...Consumer Price Index
They will release the CPI number tomorrow. It will be interesting to see if it rose (it has the last 3 months in a row)
| 0.1 | 0.4 | 0.2 |
PPI (Producer Price Index) has rose from negative to exponential gains in the past 3 months
| 0.2 | 0.4 | 0.5 |
If PPI is rising it should be reflected in the CPI.
The reason I mention this is because I posted previously that since commodities had enjoyed a boom over the past 3 months, perhaps we will see inflation finally picking up.
That would be good for Gold.
Having lived through a inflationary period (the 70’s) I can tell you that inflation is not a slow process. Once it gets started it rises at a very fast rate.
This is a specific type of inflation that happened in the 70’s they called cost/push. Producers costs rose and were passed on to the consumer hence cost/push.
I saw this on the Cleveland FED site.
The Federal Reserve Bank of Cleveland reports that its latest estimate of 10-year expected inflation is 1.72 percent. In other words, the public currently expects the inflation rate to be less than 2 percent on average over the next decade.
Using the past 3 months CPI it is projecting 6% quite a difference.
It is also interesting to look at the year over year figures un-adjusted and compare them to commodity price charts, i.e. for May 2016 prices vs June 2015 prices and see at what point commodities prices are exactly where they were a year ago.
I did a rough calculation a whil ago on the Feb 2015- Feb 2016 data and concluded that falls in energy commodities added -0.8% to year over year CPI, which at that time was +1.0%. Therefore, without the fall in energy commodities it might have been 1.8% and with a reversal of the previous year’s falls in commodities it would have been 2.6, over target already andd a LOT more than the short term interest rates.
Even 2.6% CPI would make the real interest rate on all treasuries NEGATIVE.
This calculation of mine included only energy commodities I think, not all commodities.
I need to re-visit this to see if I got it right but I am sticking with that as a benchmark for now.
I have also been thinking that as this is a election year in the US the FED may not raise rates until after the election.
The FED is partly politically motivated as the head of the FED is appointed by the incumbent President Obama.
They would not let the stock market go down before a election.
If the CPI comes in strong they still may not raise rates which puts them behind the curve between current rates and inflation expectations.
Here are some 1-year commodity charts but these will actually apply to whatever date you look at them as time goes on:
Gold – UP year over year as of 14 July 2015:
http://stockcharts.com/h-sc/ui?s=$GOLD&p=M&yr=1&mn=0&dy=0&id=p84715185119&a=422997387&listNum=1
WTIC oil – DOWN SLIGHTLY but close to flat year over year as of 14 July 2015:
http://stockcharts.com/h-sc/ui?s=$WTIC&p=M&yr=1&mn=0&dy=0&id=p84715185119&a=422997387&listNum=1
Natural GAS NATGAS – Practically FLAT year over year as of 14 July 2015:
http://stockcharts.com/h-sc/ui?s=$NATGAS&p=M&yr=1&mn=0&dy=0&id=p84715185119&a=422997387&listNum=1
Wheat – DOWN year over year as of 14 July 2015:
http://stockcharts.com/h-sc/ui?s=$WHEAT&p=M&yr=1&mn=0&dy=0&id=p84715185119&a=422997387&listNum=1
A mixed bag right now year over year. If/when they have all turned up, we might all be in trouble with our standard of living!
CRB Index – DOWN year over year as of 14 July 2015: 190 versus 218 (-13%):
http://stockcharts.com/h-sc/ui?s=$CRB&p=M&yr=1&mn=0&dy=0&id=p84715185119&a=422997387&listNum=1
Looking at it year over year helps to smooth out seasonal adjustments in CPI I think – but it does not give us a very early signal as do the monthly figures. However the monthly CPI numbers are pretty noisy.
Don’t look at year to year it will avg flat. Look from Feb this Year.
I was wrong: I was looking at Energy not just enmergy commodities:
February 2016 year over year figures at the BLS:
http://www.bls.gov/news.release/archives/cpi_03162016.htm
6.686% x -12.5%=-0.83575% (energy had -0.84% contribution to CPI approx)
relative importance (weighting) x ENERGY figure (not just energy commodities).
Note that energy costs fell more Feb 2015-Feb 2016 than they did in Jan2015-Jan2015 which would have caused CPI to drop y-o-y which it did.
Looking at Jan 2015 – Jan 2016:
http://www.bls.gov/news.release/archives/cpi_02192016.htm
weighting x energy change = CPI change due to energy:
6.686% x -4.5%=-0.30087% (Jan 2015 to Jan 2016).
implying that annual CPI in Feb 2015 would be about 0.5% less than January’s figure because of the energy contribution changing from -0.3% to -.8%, all other things being equal.
Did it? Well, I am fairly pleased with myself now because Jan overall CPI was +1.4 and Feb’s was +1.0, the drop was 0.4%. Not bad for a back of the envelope calculation!
April 2016 yoy
weighting x energy change = CPI change due to energy:
April 2016 yoy: Energy price change was -8.9%
6.686% x -8.9% = -0.59504 (-0.6)
Hmmm, so April’s CPI should be somewhere inbetween Jan’s and Febs and it was (+1.1%). I think this works.
http://www.bls.gov/news.release/archives/cpi_05172016.htm
April’s CPI was +1.1, so this fits.
May 2016 yoy: Energy price change was -10.1%
6.686% x -10.1% = 0.6752% (say 0.65%)
So energy had a more negative conribution than in April strangely, so CPI in May was a little lower than April at 1.0! Check – YES!
All this time, service sector inflation (less energy services) has been running at +3.0, +3.1, +3.2% with a weighting of 59.6% into the overall CPI-U (CPI – Urban). That’s nearly 2/3 of the index so basic inflation as per their calculation is about 2% plus any changes in commodities (including energy and energy services) putting it crudely.
Just you wait until the energy figures and the energy commodities figures turn positive!
Yes the energy bust really flattened the index but I agree if they do recover look out.
For you Brits out there, this is why the British gov’t abandoned the old retail price index RPI and replaced it with a CPI index. The RPI index gave higher figures than CPI perhaps mainly because it used the Carli method (arithmetic weighting): What do you know? Taxpayers are forced to pay people handsomely to write this waffle:
https://www.statisticsauthority.gov.uk/wp-content/uploads/2015/12/images-assessmentreport246theretailpricesinde_tcm97-42695.pdf
We all know the numbers are massaged. Unless they do another “Hedonistic” adjustment inflation may leak into the official CPI. I am very curious how Gold will react if the number tomorrow is trending higher.