Consumer Inflation Falls More than Expected

By Brad Zigler

Real-Time Inflation Indicator (per annum): 7.8%

Disinflation seems to have finally entrenched itself in the U.S. government's premier monthly statistic, the Consumer Price Index [CPI]. That's not to say deflation is here. Inflation isn't quite dead. It's moribund, though. The rate of inflation measured by CPI has definitely turned down.

Readers of Hard Assets Investor, of course, have known of disinflation for some time now by monitoring our Real-time Inflation Indicator (see "Computing Inflation In Real Time").

CPI decreased 1% in October, according to the Bureau of Labor Statistics [BLS], to a level 3.7% higher than October 2007. The Street had been looking for a monthly drop of only 0.8% in the inflation rate.

September's annual inflation rate was 4%. Six months ago, CPI was clocked rising at a 3.9% annual clip.

Fueling, or rather defueling, inflation were retail energy prices, which fell 8.6% in October. Consumer food prices, though, rose 0.3% last month, half the pace of September's increase.

Factoring out fuel and food costs, October's so-called "core" inflation fell 0.1% to an annual rate of 2.2%.

The inching up in consumer food prices last month represents the remainder of supply chain inflation being squeezed out (see our report on the Producer Price Indexes for food at "Producer Prices Fall. Surprised?").

Our own predictor of food price trends, the Breakfast Index, shows that deep declines in food prices were pretty much universal in October. The index takes the measure of eight futures contracts on common breakfast table commodities. Futures represent the ultimate in real-time wholesale prices for crude goods.

Commodity	Contract Month	31-Jul-08 Price	31-Oct-08 Price	3-Month Change	Annualized Change
Wheat	December ‘08	$8.0875./bu	$5.3625/bu	-30.4%	-76.2%
Orange Juice	January ‘09	114.30 ¢/lb	80.30 ¢/lb	-29.8%	-75.4%
Cocoa	December ‘08	$2,878/tonne	$2,053/tonne	-28.7%	-73.8%
Coffee	December ‘08	143.15 ¢/lb	113.00 ¢/lb	-21.1%	-60.9%
Sugar #11	March ‘09	15.11 ¢/lb	12.02 ¢/lb	-20.5%	-59.7%
Milk, Class III	November ‘08	$18.16/cwt	$15.46/cwt	-14.9%	-47.2%
Pork Bellies (Bacon)	February ‘09	92.000 ¢/lb	84.775¢/lb	-7.9%	-27.7%
Butter, AA	December ‘08	144.00 ¢/lb	149.00 ¢/lb	3.5%	14.5%
Average				-18.7%	-50.8%

Comments

[DavyJ:]

Perusing a calendar and using my inner-city public school education, I conclude that the elapsed time from August 29 to October 31 is actually only two months, not the three mentioned in the article.

Also, no mention is made of how the annualized percentages are calculated and somehow those numbers seem suspect. Some clarification is in order.

2008 Nov 20 10:12 AM