Posts filed under “Inflation”

3.4% Inflation is Worst in 5 years

Here’s something that only got minor play this week:  CPI data for December, and the full year were released, and it waren’t purty:

For 2005, inflation rose at the fastest rate since 2,000 — while Personal Income gains failed to keep pace with price  increases.

I’d like to see someone try to spin that positively.

CPI rose 3.4% for the year, despite Consumer Prices declining 0.1% in December, and 0.6% in November. AP noted that this "represented
the first consecutive monthly declines in two years, but both months
were heavily influenced by declines in gasoline and other fuels that
are expected to be reversed in January."

For the full year 2005, Energy prices were up 17.1%, followed by Medical Costs up 4.3%, Housing Prices up 4% and Education 2.4%.

All kinds of Energy went up in price: Gasoline prices were up 16.1 percent, Natural Gas prices jumped by 30.2 percent, and Home Heating Oil was up 27.2 percent. These are huge increases being felt by consumers in their higher heating bills, just about . . . NOW.

This data makes me wonder:  Why do some economists insist on focusing on the core rate? Because volatile food and energy can throw the data off for a month?  With inflation up 3.3% in 2004, and plus 3.4% in 2005, remind me again why we insist on ignoring food and energy?

That makes little sense after 2 consecutive years of significant, broad price increases.

What’s the Fed have to say about this?

Jeffrey M. Lacker, president of the Federal Reserve Bank of Richmond, stated:  "I think it is too soon to declare that the ‘pass-through risk’ is entirely behind us."


File: Download cpi_2005.pdf


Consumer Price Index Up 3.4 Pct. in 2005
AP, Wednesday, January 18, 2006

Inflation Hit Five-Year High of 3.4% Last Year
Wages Didn’t Keep Up, Labor Department Says
Nell Henderson
Washington Post, Thursday, January 19, 2006; Page D01

Category: Inflation

Soft Spots Go Beyond Employment

Category: Earnings, Economy, Employment, Inflation, Real Estate, Retail

Has the Fed Kept Inflation in Check?

Category: Currency, Federal Reserve, Inflation

Fed Minutes

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation

A World of (mostly) Flattening Yield Curves

Category: Economy, Federal Reserve, Fixed Income/Interest Rates, Inflation

Gold & The Wizard of Oz

Category: Commodities, Federal Reserve, Inflation

2 Studies on the Flattening Yield Curve

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation, Technical Analysis

Explaining Yield Curve Inversions

Category: Economy, Federal Reserve, Fixed Income/Interest Rates, Inflation

Inverted Yield Curve: Its different this time (not)

Category: Federal Reserve, Fixed Income/Interest Rates, Inflation, Technical Analysis

Economists React to Fed


The Federal Reserve, as expected raised interest rates for the
13th consecutive time Tuesday, lifting the federal-funds rate by a quarter
percentage point to 4.25%. The central bank suggested it would raise rates
again, but also hinted that it is less certain on its future rate actions than
it has been in over a year. In the accompanying statement, the Fed said growth
remained "solid", inflation excluding food and energy prices had "stayed
relatively low," and inflation expectations were contained. But it also warned
that the possibility of further erosion of spare productive capacity and high
energy prices "have the potential to add to inflation pressures."

What do
economists and other analysts make of the changes? Here’s a sample of their

* * *

The Fed has finally taken the step that we have been
pointing to for a while, in separating the two concepts of reaching neutrality
and finishing the rate cycle. They kept "measured," as we thought they might,
but now it refers to "some further measured policy firming" as opposed to
removing accommodation at a measured rate. So, rather than being on automatic
pilot in raising rates toward neutral, the FOMC now sees itself in the second
stage of the rate hike cycle — further moves will be perceived by Fed officials
as taking policy toward a restrictive stance.

– Stephen Stanley, RBS
Greenwich Capital

* * *

The message from the FOMC appears to be that barring a
major change in the tone of economic data, another 25bp tightening move will be
implemented at Chairman Greenspan’s last meeting on January 31. At that time, it
is quite possible that the "measured phrase" will be jettisoned, leaving
incoming Chairman Ben Bernanke with a clean slate for the next meeting on March
28. Our own view remains that the evidence concerning economic growth should be
sufficiently strong in coming months to spur another three 25bp tightening
moves, lifting the Fed funds target to 5.00% in the second quarter of the year.
We think that growth will then be moderating sufficiently for the FOMC to cease
tightening, even if core inflation drifts up mildly from its current

– Joshua Shapiro, Maria Fiorini Ramirez Inc.

* * *

The Fed announced: "Core inflation has stayed relatively
low in recent months and longer-term inflation expectations remain contained."
Quite frankly, we do not believe them. We know that beyond the rises in food and
energy prices, nearly everything — from healthcare to building materials to
education costs to insurance to commodities — costs more. And gold, the world’s
best inflation indicator, is well over $500 per ounce. Where ever we look, we
see evidence that prices have limited stability and an upward bias.

Barry Ritholtz, Maxim Group

* * *


Read More

Category: Economy, Federal Reserve, Inflation