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Inflation Rate Tame?

Posted By Barry Ritholtz On May 19, 2005 @ 11:35 am In Economy | Comments Disabled

Yesterday’s CPI data (for April) was a stiff 0.5%, or 3.5% ona year over year basis. Yet the markets chose to focus on the flat core growth rate of 0.0%, or 2.2% on a year over year basis.

I suspect that CPI was an excuse for the rally, and not the underlying cause. The data is simply  belied by the ordinary consumers’ daily experiences. Prices have been going up steadily, especially in areas not measured by the Department of Labor [1].

This chart shows both CPI and its smoothed out "Core" rate as in a recent uptrend. 

click for larger graphic

Briefing_cpi [2]

Briefing.com observes:

•     Y-o-y growth returns to Nov’s four year high of 3.5%.
•     But the core (ex-food and energy) fell to 2.2% yoy fom Feb’s 2 1/2 year high of 2.4%.
•     Flat core growth tremendously encouraging after the bloated
gains of the prior two months — 3 month average of trend 0.2%.
•     Energy prices (4.5%, 17% yoy) provided the lift along with an 0.7% jump in food prices.
•     Hotel/lodging -1.2% after 5% two month gain.  Medical care just
0.2% in April as vehicles were flat and apparel prices fell -0.6%.
•     Service costs at 3.2% yoy.  Core commodity costs at 0.5% yoy as energy costs are up 17%.

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Here’s the WSJ’s [3] take:

Wsj_05182005085202"Higher prices at the pump continued to force consumer prices higher last month, the government reported Wednesday, but there were signs that inflation pressures were moderating elsewhere in the economy.

The Labor Department said the consumer-price index for April rose 0.5%, driven largely by a 4.5% jump in energy prices — the biggest gain in that category since a 5.7% jump in March 2003. Food prices also increased smartly, jumping 0.7% after a 0.2% gain in March. But excluding those often-volatile categories, consumer prices were unchanged last month.

In annual terms, the inflation picture was mixed. Overall consumer prices rose 3.5%, higher than the 3.1% gain in March, but core consumer prices rose 2.2%, slower than March’s 2.3% gain. Thus far in 2005, CPI has increased at a seasonally adjusted annual rate of 4.8%; consumer prices climbed 3.3% in 2004.

Energy prices have been a culprit in pushing inflation gauges higher for many months. In April’s CPI report, gasoline prices climbed 6.4% and natural-gas prices increased 5.6%. But crude-oil futures have sunk from highs of around $57 a barrel early last month to trade around $48 a barrel in recent days. That slide is likely to hold down petroleum prices in the future, economists said.

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Sources:

Energy Costs Fan Inflation;  Other Price Pressures Ease

April Consumer Prices Rose 0.5%, But ‘Core’ Index Was Unchanged
WALL STREET JOURNAL ONLINE NEWS ROUNDUP
May 18, 2005 12:31 p.m.
http://online.wsj.com/article/0,,SB111641799105836833,00.html

Briefing.com [4]
CPI
http://interactive.wsj.com/documents/bcom-fueccpi.htm
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URL to article: http://www.ritholtz.com/blog/2005/05/inflation-rate-tame/

URLs in this post:

[1] Department of Labor: http://online.wsj.com/documents/bbcpi.pdf

[2] Image: http://bigpicture.typepad.com/.shared/image.html?/photos/uncategorized/briefing_cpi.gif

[3] WSJ’s: http://online.wsj.com/article/0,,SB111641799105836833,00.html

[4] Briefing.com: http://interactive.wsj.com/documents/bcom-fueccpi.htm

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