Do you believe that inflation is not rising?
2. The dollar is weakening about the euro and yen and imports could become more expensive.
3. Deflation expectations have been receding.
4. US treasuries yields exceed 3.7%, bonds experience sell off pressure.
5. Manufacturer capacity is 70% and unemployment exceeds 9 percent.
In 2006, inflation look out of control, at 3.5-4 percent and again in 2008, inflation spike caused from the $140 a barrel fuel costs. However, today, it really looks premature to say inflation is rising.
What are your reasons for believing inflation is not rising?
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M$4 Answers
"In the 70s, it was: core inflation quickly shot up after the energy and food price spikes. But this time that’s not happening at all: the rise in inflation is all commodities, with no sign that expectations of inflation are getting embedded in price-setting through the rest of the economy."
He seems to think that short-term inflation in commodities (which is occurring) does not indicate a long-term rise in core inflation, which would necessitate action from central banks.
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M$1) What index are you watching?
Commodity prices are in a sustained uptrend for about three months.
Bloomberg reports that the ONLY commodity that was not up today was cocoa.
The Dow Jones commodity index is up approximately 30% since March
2) Yes. The very definition if inflation is that your currency is becoming weaker and will buy less "stuff" both imported and domestic.
3) Yes. Turn that around and it says inflation expectations are increasing.
4) Treasuries are down because investors demand a higher rate due to the expected risk of inflation. ( Getting back smaller dollars than they invested. )
As you know, Treasury securities are sod by auction and the investors set the rates by what they are willing to accept in yield.
5) Yes that really does but a break on inflation but it has not been enough.
Conclusion:
I don't disagree with your premise about 2006 but if you really believe it looks premature to say inflation is rising, you need to get out more.
I am old so we don't cook much but in the past year our average Walmart bill has increased from about 125.00 to 150.00.
Every restaurant we frequent has brand new menus and all prices are up at least 8 to 15%. The price of a medium soft drink has gone from 1.39 to 1.79 at our McDonalds. The real clincher is the "hamburger index". Fast food hamburgers have gone from 2.25 to 2.75 and restaurant hamburgers are up from 5 to 6 dollars to 8 or 9 dollars. And that is just this year.
And the price of oil is just going to make it worse. Don't expect Obama to save you. They promised to keep the price of oil down back in the '70's and all they succeded in doing was to make gasoline almost totally unavailable.
Cheers, I enjoy your questions.
http://bloomberg.com
http://fideilty.com
http://prophet.net
http://stockcharts.com
http://pring.com
Personal check book.
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M$
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http://online.wsj.com/article/SB124408049136283313.html
Here is the article. The charts are missing. I've emailed the author to see if he can tell me where the charts are and the index. The commodity index showed slightly increase above 100, a 2005-2009 low.
I now believe the CPI is broke.
1. The Consumer Price Index is sliced into the following percentages: 1% Tobacco, 3% Personal Care, 5% Apparel, 5% Medical Care, 6% Education, 6% Recreation, 16% Food and beverage, 18% Transportation, and 40% Housing.
2. Cost push inflation occurs when rising fuel costs increases product price by increasing the demand for products and reducing the supply. Each item cost more to produce and increases the risk of excess inventory, increases transportation costs, and decreases profit margins because of rising fuel costs. This differs from demand pull inflation. Demand pull inflation works as increased demand signals an increase in production, large supply, and lower product cost.
3. Inflation is in response to a political of printing to much money. Congress and the President can raise taxes or cut government spending in response to rising inflation.
4. In 2010, CPI has deflating housing prices caused from high unemployment rates and overvaluation of home prices caused from low interest loans and non-conservative loan practices; and rising transportation, food, and recreation costs caused from rising oil prices. The CPI does not seem to paint an accurate picture of inflation. The fed claims 2% inflation, fails too buy gold, and keeps interest rates near zero because of the CPI, PPI, and deflator indicators readings. However, 20-30 potential declines in housing prices will keep the CPI indicator showing low inflation while rising energy prices suggest rising inflation. Increased pressure to consume will be limited as real incomes continue to decline.
5. In the 1980s, the Fed raised interest rates six times to fend off inflation as oil prices rose. The Fed reasoned that rising oil prices had the same affect as raising taxes or an interest hike. However, the Fed was not considering the affects on foreign domestic investment. FDI is bond gold. Money flows back into the US as interest rates rise and foreigners begin buying bonds. The dollar increases in value as foreigners buy dollars to buy the bonds. In 2010, rising oil prices and a weak dollar are not being met with rising interest rates. As a result the euro gains in strength against the dollar. Central banks continue to buy up euros. European economics is not exciting and the flight to the euro seems poor. China balances its foreign reserve evenly between the dollar and the euro holdings. The low fed interest rates will allow the euro to gain in strength against the dollar. More yuan will flow to the euro as it gains in strength against the dollar.
6. Higher oil prices mean less money to spend on consumption and less stimulus for the economy. High oil prices work like a tax, both inhibit economic growth.
7. What have been the oil prices per barrel from 2006 through 2010? 2006 ($79) 2007 ($74) 2008 ($125) 2009 ($71) 2010 ($82) (http://zfacts.com/p/196.html/)
8. What makes up the producer price index? 23% consumer foods, 25% capital equipment, 17% consumer durables, and 35% consumer nondurables. PPI reflects the prices of crude materials, such as, grains, livestock, oil, and raw cotton. PPI reflects intermediate goods like flour, leather, autoparts, and cotton yarns. PPI looks at finished goods like bread, shoes, autos, and clothes. The capital goods slice of the PPI includes equipment and machinery and civilian aircraft. Short term, PPI and CPI are not well correlated. PPI reflects the cost of very few services, it focuses on finished goods. However, long term PPI and CPI become high correlated. The food and energy components of the PPI are very volatile, going up and down over a few months period of time.
9. GDP deflators are the broadest measures of inflation. There are three GDP deflators: fixed weight deflator, chain price deflator, and implicit deflator. GDP deflators are lagging and reported quarterly. CPI , PPI, and deflator indicators move in the same direction over time.(http://pages.stern.nyu.edu/~nroubini/bci/PriceDeflatorsGDP.html)
10. Have real wages increased to real inflation percentages? Do we have less real wages to spend?
Well, I don't think so. It seems to me you are saying that inflation is not going to be a problem.
Quote davepamn:
"However, today, it really looks premature to say inflation is rising. "
I am saying that inflation is rampant already and going to get worse.
Some of your points (2,3,4) support inflation and others 1,5 deny it.
Your conclusion seems to me to reject inflation as an imminent concern.
What WSJ index are you quoting? I cannot find it.
See this chart from the source you quote - WSJ commodity page:
http://online.wsj.com/mdc/public/npage/2_3051.html?mod=mdc_cmd_dtabnk&symb=26099104
This shows commodities up almost 30% since March 09.
As to Wolfram Alpha, we are not talking about the inflation trend since 1990 that is a 19 year average. That is not relevant to the question. The question is what is inflation doing now!
I would like to see some evidence that:
"Commodity prices are slight climbing but barely above the 100 index mark. The commodity market has been very bearish. " I can't find it. I find the exact opposite:
PS: I just got notice that my cable bill is going up 6%.
sources include
http://bloomberg.com
http://fideilty.com
http://prophet.net
http://stockcharts.com
http://pring.com
http://online.wsj.com/mdc/page/marketsdata.html
The Dow is up 30 percent but the commodity Index post in WSJ was slightly above 100. Commodities have taken a beating and barely on the rise. I would say based on that trend that inflation is slightly increasing.
Circular. Are you saying that you agreed with my analysis?
As to anecdotal information, my gasoline bill was at a two year low this month, only $166, where it had been as high as $390. I got a digital camera from Circuit City this month for $75 delivered.
So I think that it will be at least two years before we see signs of serious inflation.
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M$Our rent has stayed the same for the last 2 1/2 years
So has our internet, utilities, phone, and insurance.
What hasn't stayed the same- groceries! 1lb of pinto beans was 99 cents a pound. Now it's $1.49. We used to buy bread at $1 for 2 pounds. Now the cheapest we can find is $1.49 for 24 oz. Mac and cheese was no more than 15 cents a box- now the cheap stuff is 25 cents a box.
Prices have gone up at my grocery store. And it hasn't been a one time thing- they've gone up and stayed up. I realize that statistics are saying that we aren't experience much, if any inflation- but living in the real world says other wise.
Personal experience
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M$
Don't you forget to factor in rising gas and heating costs.
Correct. When inflation comes, everything doesn't go up at the same time or by the same amount.
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@ williamwaco
I think some things are harder to change the prices on. Grocery stores seem to change most prices weekly. So people are used to prices at least slightly varying from week to week. Can you imagine if rent was like that though? That would be hell?
I'm keeping my fingers crossed that our rent doesn't increase with inflation. I don't know why- I know all of our neighbors are already paying a higher rent. I'm just hoping we have the "good" tenant rep- so hopefully they won't raise it.
Thanks juliusfink! That's interesting!
What is causing the Euro to decline or fall? How will a declining Euro affect a declining dollar?