Further Evidence That Inflation Isn't Imminent

As a post script to my last entry addressing premature inflationary concerns, the labor department just released May’s CPI numbers showing that year over year core CPI increased by a benign 1.8% in May.

In addition, the Fed’s reading of industrial capacity utilization sank further to a record low 68.3%.

I think these numbers simply reinforce my contention that inflationary forces will continue to be largely blunted by the deflationary crosscurrents of record slack in the economy and high unemployment.

Disclosure: No positions in inflation linked securities.

Comments

[jratl:]

Inflation ~ Money Supply + Debt. It would be informative if the CPI & PPI figures included footnotes with quarterly changes in money supply and debt. Wouldn't that help put the price index into perspective?

Jun 18 08:38 AM

[Bondo:]

CPI not withstanding, except for housing prices and apartment rents, almost everything I've been buying lately costs dramatically more. Gas, health insurance premiums, food, entertainment, kid's college expenses....

Jun 18 11:41 AM

[TradingHelp...:]

Government sourced inflation data is often close to worthless. For example the basket of goods they use here, in the UK, includes items that the average family can't afford in a recession. The real basket of goods for lower-middle and working class families is much more exposed to food and energy costs than the official government basket suggests. It doesn't matter if iPods, DVD's, vacations and new cars are falling in price when food, oil, electricity, etc is rising (as it has for most of the past 2-3 years). Families can't afford the former luxuries and have to buy the latter necessities. Add into the equation stalled personal earnings growth and in this recession you have a much higher real inflation rate for most people than you will at more prosperous stages of the economic cycle. Unfortunately the central bank and governmental bureaucrats won't see it from their 2nd home in the Hamptons (or Tuscany for Euro-zone box-tickers).

I'll give you another pretty weird example of how out of touch the bureaucrats are in UK. The government is giving a £2,000 grant to buyers of new cars if the buyer part-exchanges their old, less fuel efficient car. Well you still need to put down say £13,000 to secure the average family car. So the middle class and wealthy who have £13,000 or more sloshing around their bank account get a nice discount to buy a car. If you don't have £13,000 spare to buy a new car, (and I humbly suggest consumers like that need government help more), you get nothing. It's redistribution of tax-payers money from the poor to those rich enough to buy new cars. Madness.

Jun 18 04:41 PM