Are US Inflationary Concerns Inflated?

The charts below are from the St. Louis Federal Reserve, using CPI data from the BLS, and show the percent change from a year ago, from 2000 - 2008.

Inflation: Food

Inflation: Energy

Inflation: All Items Less Energy and Food

Is it possible that inflationary fears are inflated? Consider that:

1. Food inflation fell in both February and March 2008.
2. Energy inflation fell in both February and March, and is lower in 2008 than in 11 months in 2005 and 2006.
3. Inflation for all items less food and energy is lower in 2008 than in 10 months in 2006 and 2007.

Comments

[echotoall]

i guess here is where academic (stats) and real-world (actual prices) differ. With retail gas at 3.95 (regular) in the NY area and everyday items 30% higher than a year ago, energy and food can no longer be excluded when dealing with inflation expectations... espcially when a consumer freeze is coming. Energy and Food costs are the real burden... so yes... inflation is now a major concern. (no matter what the charts say)

We are at a point in time where the charts above are intersting if the real worry (food and energy) is moderated, but until the real concern is taken care of, they are irrelavent.

What i would find more relevant is if the food and energy price changes were overlapped with 'personal incomes'. I know what i will see, and, IMO, that is the real burden.

[buyitcheap]

shadowstats.com has the unmodified CPI figures and it is enlightening.

[jcrash]

A) Less inflation is still inflation. Just because gas went up LESS, doesn't mean things are good.
.
B) Shadowstats is a web site built to MAKE MONEY. Of course it is going to be sensationalist. Ignore it until he makes his newsletter free.

[John Pseudonym]

Put down your charts and go shopping.

Then you'll know if inflation is real...

Start with filling your car up, then go buy milk and all the other staples.

If you'd been doing this for the last year, you'd see the prices have have increased 25% to 40%.

I buy a car once every 10 years...groceries I buy everyday...

[Negative carry]

Dr. Perry can we see those graphs overlaid with the increases in wages?

[Negative carry]

All of the BLS inflation numbers are a case of "who you gonna believe, me or your lyin' eyes?"

The government has motive, means, and opportunity to fudge the numbers at every turn. You be the judge.

[bearfund]

One problem this type of analysis overlooks is that, while they are indeed "volatile", food and energy prices have overall risen much more rapidly than other prices over the past decade. That, plus paltry wage growth and the fact that it's difficult to do without them, mean that these goods make up a much larger part of the average person's spending than they did 10 years ago. So 4% food price rises and 16% energy price rises are more troubling from both a social perspective (food riots) and an economic perspective (crunches demand for other products) than it would have been as a "brief spike" 10 years ago.

Second, look at the clear and obvious channel on the food graph. Food prices are rising rapidly and even if the rate of increases drops back to the bottom of the channel, they'll still be rising around 3% per year in mid 2009. And unlike energy, we haven't seen food get cheaper in absolute terms in a VERY long time.

Energy, well, we all have our own views there. I say peak oil, you say speculative demand. But anyone can see from your graph that energy prices have risen a lot and are continuing to do so.

More to the point, the area under the curve of non-food/energy price increases is much smaller than the area under the curve of either food or energy price increases, despite their higher volatility. That points to these components' share of household spending to continue rising, eroding the relevance of the "core" CPI even further while at the same time making overall prices rise even more rapidly. The long-term picture here is ugly. This is an economic problem that's been brewing for some time, stoked by market manipulation and subsidies, nonexistent energy policy, and cultural denial against a backdrop of limited supply and rising base demand. Expect it to grow into a social problem in the coming decade, perhaps even a military problem beyond that. It could still be contained but the actions required to do so would require imagination and courage that no living politician possesses. Crop yields in the developing world have to rise, rapidly. Agricultural subsidies have to end. All of them, including that for corn ethanol. The rich world needs to accept that there's going to be a little less meat in its diet. And the car culture focused on sprawling exurbs must yield to prewar urbanism. That means less - or no - roadbuilding and more investment in rail infrastructure, and it means no more building permits for suburban and exurban housing developments (though the market is starting to take care of that on its own). It means letting high energy prices take their toll on demand. Fuel tax holidays are the worst possible idea. People need to get used to walking instead of driving, and, yes, perhaps putting on a cardigan instead of cranking up the heat. No one was ready to hear Carter's message in the 70s but they may have no choice but to hear it now. Finally, it means adopting a responsible monetary policy. Ideally, that would involve closing the Fed and returning to the gold standard, but I'll confine myself to likely outcomes instead. We need Volcker back. 20% interest rates for a few years would help a lot, and the days of rates consistently below 5% should never return at all. Higher rates encourage saving and discourage consumption, as well as boosting the dollar. There's no more immediate way to get food and energy prices under control in dollar terms than to raise interest rates, and without major declines in imports, consumption, and debt there is no other way the dollar is going to rise.

Taken together, these changes have a name: austerity policies. No American politician would dare to suggest them, although with consumer confidence around 60 and 75% of the country saying it's on the wrong track, there's never been a better opportunity to try. A guy like Obama, had he the intellect to see the need and the courage to risk his career to save his country, could even get away with it. But now we're in fantasyland.

[Muddling Investor]

Inflation concerns. Some even talk hyperinflation without event knowing what is it. BS! I lived through 30% a month inflation, I know something about it. 4% a year inflation is not a disaster. Even 5%. If it goes up more, Fed can easily kill it by raising rates and reserve requirements (right now it can do it by doing nothing).
Deflation is a real danger. Just take a look at Japan 1990-now. That's the main enemy Fed is fighting right now. Ammunition is low, you can't have negative interest rates. Once in deflation, it's hard to do anything (Japan, again: 13 years of almost zero interest rates and... nothing).
I'd rather have inflation than deflation. I just hope that importing current inflation from China would help.

[ponchovilla]

Bad MATH skills lead to incorrect conclusions. The numbers on the verticle axis are percent of change. Not the absolute change. The deduction is the inflation RATE may be moderating : changing at a slower rate. But the absolute price of gas at $3.50/gal now vs $2.60/gal one year age is the problem. YAAAAAAAAAAAAAAAAAA

[mark r]

Dr Perry,
you suck

[Kunst]

mark r,
That's a stupid comment.

[icandoitdon]

i'm with negative carry on this....

i don't give a damn what their numbers say. the government has a vested interest in posting low inflation numbers since most transfer payments are based on them.

is inflation a problem? yes. with all due respect, anyone who thinks that inflation is easy to kill didn't live through the 1980s when corporate bond rates were pushed to 20% and home mortage rates went to 13% before inflation was killed. inflation is easy to kill? paul volker must have missed that class.

is deflation a problem? only if you're a homeowner who bought at the top of the market.

[Horse_sense]

PonchoVilla hit it on the nail....rate of change versus actual change.
When gasoline goes from $1.50 to $2.00, the rate of change is 33.3%. When gas goes from $3 to $4, the rate of change is the
same but the PAIN factor is much greater.

Note, gas has gone up much faster than wages in recent months.
So the pain is certainly felt by wage earners who did not get 33%
raise in the same time period.

[Myron Shlapak]

The other thing to keep in mind about inflation is that it exists without a need to change.

Energy cost have gone up. All agree. If Energy costs do not go up any further but stay at their high level there is no inflation rate in the cost of Energy.

So as long as the price increases are a One and Done deal, there is no inflation rate other than that one month indication and when averaged out over a year may even show up as Deflation if there is a small reduction.

Ah, numbers. What magic we can produce with them if we try.

[cjwirth]

Inflation due to Peak Oil is here now, as we are on a plateau of global oil production. According to recent statements by President Bush, as well as a wealth of scientific study, global oil production is peaking and will soon begin to decline. Then we will really see inflation, on the order of 5 percent for a few years, and then 10 percent per year after that. Time to prepare for reality. Let me know if I can help.

[sivere]

The system is broken. In order to fix it we need to basically start over.

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