Inflation: CPI vs The Market

Last week's release of the CPI for July showed the highest year/year inflation reading since January 1991.  Ironically, however, in the same month where inflation hit a seventeen-year high, commodities had their worst month in over 28 years (since March 1980).  So on the one hand we have a government report saying inflation is high, and on the other we have the market moving in another direction. 

Who do you have your money on?

Comments

[RickRussellTX:]

I'm not sure I understand the complaint -- wouldn't we normally expect consumer price inflation to lag changes in commodities? In general, vendors are going to hold off increasing prices until it is absolutely necessary, for fear that they will not be in lock-step with their competitors and end up taking the brunt of lost sales and lost customers. Higher consumer prices come when manufacturers pass costs on to distributors and price gets increased down the line until it hits consumers. That's not expected to be an instantaneous process.

2008 Aug 18 07:09 PM

[Xyrus:]

First, as rick pointed out, CPI is a lagging indicator for inflation. Companies have already bought their stocks of supplies at the higher prices so it takes awhile to filter through the system.

Second, commodities may have taken a beating but they are still much higher than what they used to be. CPI will most likely continue to increase, but perhaps at a slower pace than this past record setting month.

I wouldn't count the commodities out just yet, though.

~X~

2008 Aug 18 09:18 PM

[notsosmart:]

the inflation rate of the 5 basic daily needs is app.15%. i dont know wether this even counts the shorting of weights & measures of the food bought in the stores.

2008 Aug 19 09:09 AM

[GUS100CORRINA:]

Yes ... on the surface short term commodity declines fly in the face of gov't data. Has anyone tracked price increases at Wal-mart over last 12 months. For example, last year I could buy a gallon of Milk for $1.60-$175. Today it cost $3+. Not sure we can believe anything gov't is saying. In fact, based on things I buy, inflation looks to be north of 25%!!!

2008 Aug 19 10:13 PM