After last week’s inflation snafu, the WSJ makes up for it this week — and then some. Just in time for today’s 8:30 PPI report, the Journal’s pages are chock full of all sorts of inflation goodies:

For Many, Inflation Is the Worry:  Life keeps getting worse for the consumer, with few
signs it’s going to get better soon. That means the economy’s woes
could drag on far longer than many thought. A growing worry is inflation. Economic slowdowns and
weak consumer spending normally curb price pressures, but that isn’t
happening this time around, at least so far.   

Food Inflation, Riots Spark Worries for World Leaders: Surging commodity prices have pushed up global food prices 83% in the
past three years, according to the World Bank — putting huge stress on
some of the world’s poorest nations. Even as the ministers met, Haiti’s
Prime Minister Jacques Edouard Alexis was resigning after a week in
which that tiny country’s capital was racked by rioting over higher
prices for staples like rice and beans.

Higher Food Prices May Be Here to Stay: For all the economists and consumers who hope high
food prices are temporary, here’s one reason why they probably won’t
be: Farm costs are skyrocketing, making permanently higher prices
essential for farmers to keep expanding production.

Those articles — all from Monday’s paper — are followed today by a Martin Feldstein OpEd, Enough With the Interest Rate Cuts. Feldstein argues that "It’s time for the Federal Reserve to stop reducing the
federal funds rate, because the likely benefit is small compared to the
potential damage."

There seems to be a growing recognition amongst the cognesceti  that several of the usual plays out of the manual are not working. Consider each of the following factors (in decreasing order of dissemination), and the impact they have on the economy, the Federal Reserve, and the current US election cycle:

• Slowing economic growth is failing to slow price increases;

• There is a widespread recognition that CPI as assembled by BLS fails to adequately capture inflation pressure;

• Inflation expectations have increased, despite all of the reassurances from the usual cylons solons;

• The Boskin commissions dishonest backdoor attempt to cut Social Security is receiving increasing scrutiny for its role in understating inflation. (See Fleckenstein: Greenspan’s Bubbles)

There is a slow but steady realization coming to the fore that there is no such thing as a free lunch, and the sooner the leaders of this nation figure that out, the better off we will all be . . .

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Google Trends: Inflation, 12 months, (Worldwide)

Trends_inflation_12_months_world

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BTW, if you wish to incontrovertibly demonstrate your lack of mental acuity, place a comment stating  that price increases and/or inflation is a lagging indicator. Use the name "half wit."

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UPDATE: April 15, 2008 9:14am

Bloomberg:

U.S. March Producer Prices Rise More Than Forecast
   

Prices paid to U.S. producers rose almost twice as much as forecast in March, reflecting higher fuel and food costs that threaten a pickup in inflation. The 1.1 percent gain followed a 0.3 percent increase in the prior month, the Labor Department said today in Washington. So- called core producer prices that exclude fuel and food increased 0.2 percent, as forecast.

Rising raw-material costs are hurting profits as slowing demand makes it difficult for companies to pass increases on to consumers. The need to avert a deeper economic slump will prompt Federal Reserve policy makers to lower the benchmark interest rate again this month even as inflation accelerates.

      
      

 

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Previously:

WSJ: "Inflation is back"

http://bigpicture.typepad.com/comments/2008/04/wsj-inflation-i.html

Sources:
For Many, Inflation Is the Worry   
SCOTT PATTERSON
WSJ, April 14, 2008; Page C1
http://online.wsj.com/article/SB120813154841311575.html

Food Inflation, Riots Spark Worries for World Leaders
IMF, World Bank Push for Solutions;
BOB DAVIS and DOUGLAS BELKIN
WSJ, April 14, 2008; Page A1
http://online.wsj.com/article/SB120813134819111573.html

Higher Food Prices May Be Here to Stay
PATRICK BARTA
WSJ, April 14, 2008; Page A2
http://online.wsj.com/article/SB120811953255811087.html

Enough With the Interest Rate Cuts
MARTIN FELDSTEIN
WSJ, April 15, 2008
http://online.wsj.com/article/SB120822025943314699.html

Category: Economy, Federal Reserve, Financial Press, Inflation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

52 Responses to “WSJ Goes Inflation Crazy!”

  1. dblwyo says:

    Barry – it’s good to be King, isn’t it ? Obviously they pay attention. Maybe inflation awareness will metastasize :) !

  2. Marcus Aurelius says:

    “It’s time for the Federal Reserve to stop reducing the federal funds rate, because the likely benefit is small compared to the potential damage.”

    _______

    Didn’t we know this last year?

  3. Wade Black says:

    wouldn’t it be great if we actually had statistics that measured inflation?

    i tried to make the point to someone the other day that hedonic deflators don’t make sense. you can’t buy a 15-year-old computer (nor do we do anything more productive with it – witness me commenting on this blog), so the idea that we’re paying “less” per CPU cycle is totally specious.

    anyone have a good source of “real” inflation data?

  4. Steve Barry says:

    The site Shadow Government Statistics, on the Blogroll to our left on this page, tries to accurately measure inflation.

    One effect of inflation nobody talks about…quite simply, if you are spending more money on food and oil, that’s less money the small investor can use to bid up stocks. So when contrarians say “the small investor is so bearish, it is time to buy” whack them into reality.

  5. farmera1 says:

    The general public knows full well inflation (in terms of increasing prices) is out of control. They see daily the price of gas and food (well we can’t count food and energy) and medical care etc going nuts along with everything else. It is just the apologists/administration/FED that think inflation is “contained” or was it well anchored. After all the “core” doesn’t show much inflation, but even that is at a 17 year high.

    I love the argument that there is no inflation because wages aren’t inflating wildly. Wage arbitration is all that is keeping inflation from blowing sky high. Labor has no power when you are competing against all those foreign workers. Or how about the argument there is inflation only if the money supply is expanding rapidly. That one is easily solved just quit publishing M3.

    The general public realizes inflation (as defined by increasing prices) is out of control.

    The press is finally catching up, the government won’t, just another example of the kind of government we have. The government can’t because of all the inflation “protected” debt they have issued,
    and SS (COL adjustments).

  6. wally says:

    Everything the US government does seems to be a lagging indicator. Has it always been so?

  7. Mind says:

    NYT this morning:

    “The surging cost of necessities has led to a national belt-tightening among consumers. Figures released on Monday showed that spending on food and gasoline is crowding out other purchases, leaving people with less to spend on furniture, clothing and electronics. Consequently, chains specializing in those goods are proving vulnerable.”

    Who could have guessed?

  8. Vermont Trader says:

    I’ve posted here before that inflation is a lagging indicator. So I guess I’m a halfwit. I won’t be posting here again.

  9. half wit says:

    Inflation and/or price increases is a lagging indicator.

  10. Uncle Jeffy says:

    “There is a slow but steady realization coming to the fore that there is no such thing as a free lunch, and the sooner the leaders of this nation figure that out, the better off we will all be . . .”

    Barry – don’t hold your breath. When the President cheerfully admits he got a C in Economics (but an A in “keeping taxes low”), and when his inner circle is dedicated to ignoring and/or burying any news that doesn’t conform to his and their happy-face view, there won’t be any “no-free-lunch” realizations. Sorry.

  11. mikkel says:

    Inflation is a lagging indicator.

    Of course death is also one.

    At this point our only choices are deflation or massive prices increases without accompanying wage increases, which would just pile on more unserviceable debt. We’re told that deflation is unthinkable, so there you go.

    PPI YOY
    Mar. finished 6.9 intermediate 10.5 crude 31.4

    Yeah, I’m really sure that profits are going to recover from those stats.

  12. E says:

    Barry, could you provide some kind of argument for why inflation is not a lagging indicator? It’s not normally your style to be so dismissive without a reasoned argument to back it up.

  13. Ross says:

    Do not despair, wage inflation is coming because wage inflation IS a lagging indicator.

    First, demand pull. Then, cost push. Cost push compresses margins hence margins revert to the mean.

    There are two ways to get out of massive debt. Either pay it off in kind to the benifit of the saver/creditor or pay it off with depreciating money to the benifit of the debtor.

    Americans will not tolerate a controlled deflation. We are not Sino peoples. We lack the patience and descpline to absorb the shame.

  14. lurker says:

    Is it truly different this time? Wages and house prices are deflating, while everything else goes up???? Has this happened before? Seems like Malthus meets Von Mises in a new and scary?/interesting way. Too much credit and paper money and not enough real resources (food, energy etc.)…VT trader please don’t be so thin-skinned as I enjoy and learn from your posts and I am sure Barry was not picking on you…

  15. Shane says:

    Holy smokes . . . wholesale inflation up 1.1% . . . annualized that’s 13.2% . . . 70s part deux here we come.

  16. Inflation is a lagging indicator anyone with excel and some data points could prove it.

    But economic activity peaked in roughly mid 2007 and housing prices have been a very strong deflationary force, so we should have seen general inflation cooling off, but we don’t yet. That worries me, payback for a decade of low interest rates will be nasty.

    I’m starting to think it’s 1974-76 all over again. 2 years of slight negative growth. So much for a short and shallow recession, AND inflation ignores everything and continues to rise for years.

    Mike the half wit

  17. daveNYC says:

    Coming soon to a neighborhood near you – food riots! This is the first time in my life that it seems that the entire world is worse off than it was eight years ago.

    I think I’ll be picking up a big old bag of rice on the way home this evening. Fairway 4tehwin!

  18. me says:

    “Slowing economic growth is failing to slow price increases;”

    When will people realize the world is not US centric. Not only is oil in demand other countries, it is a supply problem.

    Yesterday I read how they are trying to tell India and China not to fall in love with autos.

    Mercedes says we won’t sell many cars in the US but emerging markets will more than make up the difference.

    Foreign earnings are a boon for US companies – or How’s that working out GE?

    Today WSJ. Russian oil output DOWN.

    Its not speculators, its demand.

  19. Mind says:

    Come back Vermont Trader! Don’t let BR’s feisty attitude bother you. He’s a New Yorker – they drink strong coffee down there.

  20. Entropy says:

    Anyone out there willing to go out on a limb and predict when TSHTF? Or will this be a looong slow grind to the bottom?

  21. ndd says:

    Barry, a couple of points:

    1. the YoY inflation rate normally peaks about 4 months into a recession before declining. That puts us right about now.

    2. This piece of data fits well with yesterday’s retail sales data. As a whole, consumers aren’t retrenching yet. They are merely shifting spending to food and gas. And hitting the credit card some more. Usually consumers retrench dramatically entering into a recession. That hasn’t happened yet. Once consumers cut back (and the retail data goes negative in nominal terms as well), then we should expect the YoY inflation numbers to start to decline.

  22. Shane says:

    The problem isn’t the supply of food/commodities . . . the problem is the supply of money.

    If you price oil in gold has been pretty constant over the past 3 years.

    We had a massive credit bubble caused by an oversupply of money via low interest rates from 2001-2004ish. Now that the credit bubble is collapsing the Fed (and I believe other central banks will soon follow) is trying to prevent the massive collapse, so they are trying to inject as much liquidity into the market as they can.

    This new money which is to take the place of old money being destroyed in the credit markets will not go to those markets. This new money will go to where there are profits to be made . . . commodities.

    The issue is not supply of goods, its that banks are being given loads of money and they in turn are putting that money in commodities so they can make more money to in turn help stem their bleeding from the credit collapse.

    J6P will be the last person to actually see an increase in his wages from the injection of money.

    In sum . . . the housing bubble was caused by massive inflation, and the soon to be commodity bubble which will start in about 2-3 years will be a result of massive inflation. Without the massive inflation they would have been nice booms, with massive inflation we will get massive bubbles.

    We ain’t seen nothing yet with respect to commodity prices.

  23. My apologies to Vermont Trader — that was not directed at you, but rather, a wingnut asshat who has annoyed me thrice too often

  24. stuart says:

    “The problem isn’t the supply of food/commodities . . . the problem is the supply of money.”

    True, that is a root problem but ultimately demand is principle driver for food and oil. 2-3 billion people undergoing an industrial modernization that western europe went through 200 years ago is driving the supply and demand squeeze eating up surplus inventories at an astonishing rate. One crop failure this year and sporadic food riots will turn large scale. P.S. peak oil is real, so same goes for oil. The only “commodity” we seem to have no problem with supply is … dollars.

  25. dave54 says:

    HOME PRICES are falling, but compare what it takes (down payment) and the cost of “housing” for many buyers would actually be higher today than in 2005…

    WAGES & BENEFITS:
    More $$$……….No can do
    Healthcare……..unaffordable
    Transportation….mess
    Retirement……..lottery ticket
    Guns & Drugs……everywhere
    Hyper-faith…….Obama

    [Those "socialist" over in Europe make me wan'na puke!]

  26. Jodie says:

    Shane is right.

    The rise in prices have been so persistent and so all encompassing it must be driven by monetary factors.

    Negative real rates are corrosive and eventually undermine peoples willingness to swap their goods for money.

    The Chain of causation might eventually pass through the supply and demand for each particular good or commodity but the underlying tide must still remain that the supply of money is much higher than the demand for it.

    It is money that is losing its value

  27. Nemo says:

    “Cognesceti”? I suspect you meant “cognoscenti”.

    If you are going to use a $10 word, you might want make sure you actually know the word. :-)

  28. Rock says:

    Anyone investing in Soylent Green yet?

  29. Larry says:

    I think the real denial is of the possibility that some of the inflation isn’t monetary related.

    I do recognize the gold vs. oil price arguments, but gold isn’t a perfect measuring stick. For one thing, no one actually bases their currency on it. And has the supply of gold expanded with population growth, the amount of “stuff” manufactured or its use in industry and jewelry?

    The prices of food and oil/natural gas are going up due to demand and supply issues, especially due to emerging middle classes in India and China. And subsidies for them aren’t helping, especially in China.

    While it may be possible to expand food production to keep up (even meat production for China), oil and natural gas is another story.

  30. Ross says:

    Come on Nemo. Everyone knows it USED to be a $10 word. Buy dot com has it on sale for $17.95 with free delivery!

  31. Perhaps Fed heads should dump their data models and start examining planetary patterns.

  32. DonKei says:

    Whether lagging or leading, inflation is everywhere and always a monetary phenomenon.

    You guys getting sick of me saying that?

    Shane and Ross are dead on, as usual.

    Aside: I, too, like and learn from your posts, Vermont Trader. Don’t quit.

  33. stuart says:

    “It is money that is losing its value”….. Yes, but the key is:

    We don’t have enough barrels or enough bushels relative to demand.

    Those are the proper units regardless of how they are priced. Raw demand is outside of $ and it is rising. $ pushes incentives to promote supply but within natural physical abilities. Price wheat how the hell you want, but one large crop failure, well,…most societies are 3 consecutive days of losing 3 square meals each day from people entering the streets. In that case, the dollar can remain stable (via intervention etc) the market price of wheat is going higher, demand driven relative to supply.

  34. Jodie says:

    stuart,

    Money illusion is a powerful thing. Central banks depend on it.

    Ask yourself why demand is so strong. Why wasn’t it this strong in the late 1990s?

    Because every basket case emerging market country is stuffed with dollars and can afford things.

    Even Brazil is BUYING dollars to keep its currency from strengthening.

    Whether it is the trade deficit or negative real rates or the preponderance of price increases, this is unmistakably a monetary phenomenon.

    Americans are too anchored to their unit of account (dollars) to see this fully.

  35. Larry says:

    Look, no one is saying that inflation isn’t mostly a monetary thing. Or maybe it’s not really “inflation” but prices reaching a new, higher equilibrium level.

    Considering factors like technology, carrying capacity, peak oil, droughts, loss of arable land, etc., I don’t see how prices will revert to historical levels of the past two decades in the short term.

    Long term? well, we’re all dead…

  36. ed says:

    Well, inflation is a lagging indicator -in this case it’s lagged idiotic Fed policy by a few years…

  37. stuart says:

    I do not disgaree one bit about monetary inflation and its impact on food prices, but we’re not talking about whether food is too expensive to eat, we’re talking about whether it is even there to eat. It wasn’t prices that prompted the Phillipine central govt to raid its emergency rations of rice. There wasn’t enough rice. Period. Full stop. Not enough rice…regardless of the currency its priced in… there wasn’t any rice to be had.

    Why does the US keep strategic petroleum reserves. For the day oil becomes too expensive? No, of course not. They’re kept for the day where there is a physical shortage of oil. That’s the issue…physical, tangible shortages of stuff. That is what transcends all currencies and will ultimately dictate supply. People have to move beyond a US dollar centric viewpoint.

  38. Jodie says:

    Stuart,

    There isn’t enough rice because it is getting hoarded. People will not swap their goods for money that is losing value.

    Countries that have rice won’t sell it for dollars because they already have all the dollars they need.

    Hoarding is a natural consequence of negative real rates.

  39. stuart says:

    ya, hoarded in their bellies… LOL

  40. stuart says:

    I should also add, to clarify, most of my cousins are farmers of various grains. To a person through their networks of associations, dealers, buyers, users, etc etc.. to a T, stunned at how many more mouths are being fed relative to a decade ago. And to a one, unanimous consensus that this is a marvelous, fantastic story. More people eating better. Also to a one, hoarding is taking place, as you point out, but at the margin and making MSM headlines, but the core/root force is simply more mouths eating more and eating better and shifting to more meat needing more grains needing more… hoarding at the margin, true raw consumption at the core.

  41. DL says:

    On the subject of “leading” versus “lagging”. The so-called “CORE INFLATION” is a lagging indicator. Commodity prices (wheat, copper, crude oil) are another matter. In any case, the “core” rate is going higher.

  42. Jodie says:

    Stuart,

    Its a shame I haven’t been able to reach you. The sooner money illusion is eliminated the sooner we can get rid of this insane FED policy.

  43. DonKei says:

    Stuart,

    Food price inflation, like all inflations, is a monetary phenomenon, plain and simple.

    Inflation creates its own illusion of demand–people see prices going higher and they want to buy now, instead of later, things they know they will need. The Phillipines are hardly running out of rice, and the world isn’t running out of food, or oil, or copper, or any other ridiculously- juiced commodity. You should read the Economist for a good take on the story.

    The simple fact is there are too many dollars, and have been since at least 2003, perhaps before, when the fed flooded the world w/ dollars, trying to prevent a deflation at home.

    Commodities prices are increasing for countries that use the dollar as a peg (the Phillipines), or for countries that have lots of them in reserve (China). For the rest of the world (which is to say, not much of it) commodities have gone up not nearly as much.

    There is, of course, a demand component of the price increases, but look at oil demand–it is actually expected to decline worldwide this year, as the US economy slows, and no, there are no anticipated supply shocks that would impact the futures market. It is just too many dollars chasing barrels of oil, but the excess dollars create their own demand, as the illusion of a price increase spurs more investment in oil. It all falls apart, like it did in the eighties, when the fed shuts down the presses.

  44. sccofer says:

    this is the crux of what I have been trying to understand, is it truly a result of increased demand? Why has it seemed to all hit in a relatively short period of time, I would expect the price curve to gradually swing upward if that was the case and we clearly aren’t seeing that. It must be a result of the confluence of, the world being awash in dollars (crushing it’s value), traders pushing new glut of liquidity into commodities and maybe a small part to the ultimate realization that resources are finite and demand is indeed going to be an issue in the future? So both monetary and demand driven to an extent??

    From a relative newbie I would like to know from those more experienced than I… I am incredibly frightend about how all of this may ultimately play out, where would you rank this compared to other market/economic crisis of the past? I can quite easily envsion all of this mess leading to something on par with or even worse than the great depression. But I would imagine this feeling of gloom has enveloped that market many times before and history tells us that this crisis will pass…

    Maybe I have just been reading too much “Bear-Centric” commentary lately, but to me, it certainly feels like the once in a lifetime perfect storm…

  45. stuart says:

    Jodie,

    “The Phillipines are hardly running out of rice, and the world isn’t running out of food, or oil”

    Therein lies the difference of opinion. Warehouse stocks have been making up the difference for sometime now, but they are heavily depleted. Much like Cu from a few years ago, down 80%. We will know who’s right in due time. If it’s just a matter of inflation and pricing and no true physical shortages, you will be correct in your assertions. I believe there are actual shortages of supply brought about by a surge in true, pure consumption, depleting stockpiles. The headlines will soon enough provide evidence that I need not be reached, for I’m already there.

  46. Pat G. says:

    “The Boskin commissions dishonest backdoor attempt to cut Social Security”

    It wasn’t an attempt, it did. Now retiree benefit increases are tied to the advance in the core CPI (ex-food and energy). Back then it was the CPI.

  47. DonKei says:

    During the oil shocks of the 70′s, there was never a shortage of gasoline, i.e., we weren’t, notwithstanding the long lines at gas pumps, about to run out.

    Demand and supply remained relatively constant and in equillibrium. What changed is that people started keeping their gas tanks full (hoarding), both as a hedge against future price increases, and against a perceived shortage–that really was just inflation-induced demand.

    We’ll have the eighties again soon enough–a time when oil, food and all other commodities nearly fell off the charts in price declines. But it will require another episode of severe tightening by the fed, which is not likely to happen until we have capitulation, i.e., the realization that printing more money will not solve our economic problems. I’d say about 2012/13, as the next new president is sworn in.

  48. Winston Munn says:

    I don’t think we will see a repeat of anything we have seen before. We have stepped through the looking glass and nothing is what it seems – what appears to be inflation is in fact a crack-up boom.

    It really is different this time – unfortunately.

  49. ynotgoal says:

    I agree rapid money supply growth causes inflation and we’ve had some of that. Interesting that gold broke its up move, at least for a while, and oil didn’t.

    I just wonder… there’s, what, 6 billion of us today … with the number driving cars growing rapidly. How much oil is there? Can we increase oil production as fast as demand is growing? Economics suggests if demand grows faster than supply, price will rise, and we’ll look for substitutes. What’s the substitute for oil? Its not wind or solar or nuclear since I can’t put that in my gas tank. Otherwise, demand has to decrease to be in line with supply which sounds like a global recession to me.

  50. stuart says:

    Both Kazakhstan (wheat) and Indonesia (rice) halting exports… hoarding at a national level… crap meet fan.

  51. Rock says:

    I just came back from shopping in Cebu, Philippines. Normally, I see lots of rice. Not so this time. They had small quantities of loose rice and a few huge bags of rice. Probably only 10-20% of the amount of rice I usually see. Could be hoarding? Fortunately, I eat more bread than rice. I know a rice middleman and he tells me rice has gone up 50% in the past few weeks. So I’d have to say in this case, there is a true shortage.

    The good news is that he tells me that he expects the rice shortage to only last a few months. Rice can be harvested two to three times a year.

  52. Why Inflation Can Lead or Lag Economic Cycles

    Yesterday, we reviewed the PPI data. Today at 8:30, we get the Consumer Price Index (CPI). There is a certain faction of folks who missed the early warning signs of inflation, and are now telling us not to worry about inflation, since the threat of an …