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Economists React to CPI data

Posted By Barry Ritholtz On May 19, 2005 @ 5:43 am In Economy | Comments Disabled

The usual WSJ round up of reactions from Economists: 

"Higher petroleum prices continued to push consumer prices upward in April, the latest Labor Department report on the consumer-price index showed, but there were signs that inflation pressures in other sectors of the economy had ebbed, as the closely watched "core" reading idled. Will prices resume their upward march in May, or has the energy-driven run-up in consumer inflation faded? Economists on Wall Street and elsewhere weigh in:"

Now if only consumers can figure out how to get through their day
without eating food or burning fuel, they’ll have little inflation
worries . . .

* * *

The average person’s budget took a hit in April as the Consumer Price Index jumped. But excluding food and energy, where prices were up strongly, retail prices were flat. And it is that flat core number that will catch everyone’s attention. The biggest reason for the tame core index was that clothing and computer prices fell sharply. Don’t you just love that flood of cheap Chinese imports? Just wait until quotas get reinstated.

– Joel L. Naroff, Naroff Economic Advisors

* * *

Overall inflation is under control and should moderate as we move through the summer. After the seasonal boom in new home construction abates, GDP growth will slow and the Federal reserve will have the option of halting its rate increases later this year. … Falling inflation adjusted wages reflects a job market that rewards the highly-skilled and stiffs the ordinary working family.

— Peter Morici, Robert H. Smith School of Business, University of Maryland

* * *

As was first noted by Fed economists a few years ago, the owners’ equivalent rent gauge (and thus the core CPI) can be impacted — in a rather bizarre way — by big swings in the cost of household utilities. The OER gauge is intended to capture the pure cost of shelter, so swings in utility prices are stripped out. Thus, a sharp jump in utility prices means lower OER and vice versa. In this case, OER (which counted for 30% of the core) was probably depressed by 0.1 pct pt due to the spike in utilities.

— David Greenlaw and Ted Wieseman, Morgan Stanley

* * *

For the time being energy prices had their last hurrah with a 4.5% increase.  Core inflation however was unchanged as apparel prices and lodging costs away from home both fell, 0.6% and 1.2% respectively. There were additional favorable inflation readings for new vehicles and for other goods and services making the reading a relatively broad based one. According to the BLS energy prices could subtract two tenths from the May CPI.

– David H. Resler and Gerald Zukowski, Nomura Securities International

* * *

Core inflation is unlikely to accelerate by much if at all in the months ahead as slower economic growth limits any nascent improvement in pricing power. We continue to think that 25bp tightening moves are likely at upcoming FOMC meetings, with this "middle path" proving sufficient to limit any rise in inflation but not being harsh enough to derail the economic expansion.

– Joshua Shapiro, Maria Fiorini Ramirez Inc.

* * *

Intense competitive forces were most likely at work in the 0.1% drop in new auto prices and the 0.6% decline in apparel prices. The struggle to maintain market share in the auto sector is a battle that we expect will continue to be fought on the price front for some time to come. And, although the China textile import quota expired in January, the decline in April decline in apparel prices was the first of note so far this year. We expect this disinflationary force to continue to bear down on apparel prices for some months to come.

— David A. Rosenberg, Merrill Lynch


Economists React to CPI data [1]
May 18, 2005 11:24 a.m.

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[1] Economists React to CPI data: http://online.wsj.com/article/0,,SB111642725972836936,00.html

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