CPI benign, Fed vindicated!?
Oct CPI rose .2% m/o/m headline and was flat ex f&f, both .1% below expectations. The housing component, which makes up 42% of CPI, was up just .1% mostly due to a .1% rise in Owners Equivalent Rent. Also keeping a lid on the rise in the housing component was a 1% drop in price of hotel rooms. Energy prices rose 2.6% but food by just .1%. As CPI lags the rise in commodity prices, food prices may not continue being this tame. Also, apparel prices fell by .3% and down for a 3rd straight month but rising cotton and polyester prices will likely reverse that too. Vehicle prices fell by .4%. Commodity prices, which make up 40% of CPI, rose by .5%. Bottom line, the Fed makes policy based on the CPI and PCE readings and this data will make them think again that QE2 was the right thing to do but this data is backward looking and I fully expect the rise in commodity prices to filter into inflation readings over the next 3-6 months.
Tweet
Facebook
Reddit
Digg this!
November 17th, 2010 at 11:04 am
All the monetary policy in the world won’t stop the Chinese, Indians, and Brazilians from buying more raw materials to fuel their growing economies.
November 17th, 2010 at 12:03 pm
Considering whether the Fed is vindicated on the basis of U.S. domestic economy measures such as CPI and housing starts is a huge leap when the impact of the Fed’s actions reaches globally.
Were one also to consider growing global pushback against the Fed’s QE, one might conclude that, not only does the Fed fail vindication, but it likewise fails the objective it claims to be venturing with its policy. Stoking the fires of trade war will by no means remedy the employment situation.
Yet, Benito Bernanke did mention the existence of “excess supply” when he rationalized QE2. Were contracting this instead thought the objective of the Fed, then its policy might be thought “vindicated.” Yet this at the expense of appearing most decidedly fascist…
November 17th, 2010 at 1:04 pm
During the German hyperinflation, the monetary authorities denied the existence of inflation at all (they said that the stock of money circulating was less relative to gold during the 1920s than prior to world war one – source “The Age of Inflation” by Sennholz)
RiskAverseAlert – of course we all know the government which succeeded the Weimar Republic…intentional inflation was definitely part of that change for the worse…
November 17th, 2010 at 1:15 pm
In a globally connected economy the answer is absolutley not! Fed policy is inflating asset bubbles in emerging markets, so what happens in one specific country is irrelevent.