Posts filed under “Inflation”

Questioning The Measurement Of Inflation

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Bloomberg.com – CPI Conspiracy Theories Persist Even With Broad Checks
Maggie Humphrey, a price collector for the Bureau of Labor Statistics, visits the same grocery store every month in the Chicago suburbs to punch the cost of a pound of bananas into her Lenovo tablet computer. “That price has not fluctuated since I’ve been here,” says Humphrey, who started gathering prices for the BLS in 2006 and has checked bananas at this particular establishment for about a year. She records it as 69 cents a pound and includes their country of origin, whether they’re on sale and any applicable sales tax. Humphrey is among 400 price collectors who visit 23,000 locations in 87 cities every month to determine the cost of 80,000 products and services, from breakfast cereal to haircuts. She and her colleagues feed a database in Washington, where statisticians compile the monthly inflation report, used as benchmark for everything from Social Security payments to the value of Treasury’s inflation-indexed bonds. The bureau’s price-gathering and statistical methods are standard practice from Japan to Switzerland. That hasn’t averted a lashing from critics who say the government is engaged in a campaign to hide inflation of 10 percent a year or more. Assurances by Federal Reserve policy makers that inflation remains “subdued” also haven’t deterred the skeptics…One such critic is John Williams, the author of Shadow Government Statistics, a newsletter that he has run since 2004. Williams says the federal government understates the level of inflation to keep increases in Social Security payments and other costs down…Williams’s alternate measure of inflation was 10.3 percent for the 12 months through March, compared with 2.7 percent for the Consumer Price Index.

Comment

We examined the work of John Williams at Shadow Government Statistics in a past Inflation Watch:

Because the CPI measure has morphed so many times throughout the years, one complaint often lodged against the BLS is that inflation rates today cannot be compared to inflation rates from, say, 1980. In an attempt to offer a more apples-to-apples comparison of historical inflation, the BLS maintains a series known as the CPI-U Research Series. It reverse-engineers the CPI based on today’s index weights and methodology all the way back to 1978.

Even the BLS admits that the inflation peaks of 1980 would have been 400 basis points lower if today’s methodology was used.  So, yes inflation would be higher using the 1980 methodology.  Would it be 10%?  This is a matter of opinion.

Source: Bianco Research

Category: Inflation, Think Tank

Hours of Work Needed to Purchase: CRB, SPY, Gold, Oil

From Ron Griess and the always fascinating Chart Store, we see a very different read of inflation.

He shares this awesome selection from his weekly blog (subscription only) of commodities,  crude oil, copper, gold, silver, corn, coffee, cotton, and the S&P500 — all priced in terms of hourly earnings:
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Category: Commodities, Gold & Precious Metals, Inflation

The FOMC Minutes …QE3 And Inflation

Click to enlarge: ˜˜˜ The Wall Street Journal – John Hilsenrath and Matt Phillips: Fed Holds Fire on Stimulus The Fed is in no hurry to launch new measures to boost economic growth, minutes from the central bank’s most recent meeting showed, disappointing investors eager for more stimulus. Among the hints dropped in minutes of…Read More

Category: Bailouts, Federal Reserve, Inflation, Think Tank

Is Deflation the Biggest Risk to the Economy?

Wall Street legend Robert Prechter argues the biggest risk to the economy is deflation, not inflation


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Mar 22, 2012

Category: Inflation, Video

Bernanke, Inflation And Unemployment

Click to enlarge: ˜˜˜ Bloomberg.com – Bernanke Seen Accepting Faster Inflation Federal Reserve Chairman Ben S. Bernanke spent six years pushing for an inflation goal. Now that he has it, some investors are betting he’ll breach the 2 percent target in the short run to lower unemployment. The Fed chairman told lawmakers last week that…Read More

Category: Federal Reserve, Inflation, Markets, Think Tank

Do Rising Rents Complicate Inflation Assessment?

Do Rising Rents Complicate Inflation Assessment? Brent Meyer 02.23.12 ~~~ In the face of falling house prices, decreasing rates of homeownership, and a glut of vacant homes, the Consumer Price Index’s measure of the cost of owner-occupied housing—owners’ equivalent rent of residences (OER)—has begun to accelerate, rising at an annualized rate of 2.3 percent over…Read More

Category: Federal Reserve, Inflation, Real Estate, Think Tank

Major Secular Bear Markets (Inflaion Adjusted)

Yesterday we looked at 4 Major Secular Bear Markets. Several people asked for an inflation adjusted version. Thanks to Lance Roberts of Street Talk Advisors, you will find that below: > Real Price S&P 500 with Shiller’s Data and recessions click for larger chart

Category: Cycles, Inflation, Markets, Technical Analysis

Gary Shilling Says U.S. Faces Deflation



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Gary Shilling Says U.S. Faces Deflation
Bloomberg, September 28, 2011

Category: Economy, Inflation, Video

What Does Inflation Say About Risk On/Off?

click for larger chart > Michael Gayed observes: “When the TIP/IEF price ratio (Inflation-Protection/Nominal-No-Inflation-Protection) trends higher, it means bond market is swinging towards increased inflation expectations. When the ratio is trending down, bond market is favoring deflation through outperformance of Nominal bonds. Inflation hedge tends to be equities: risk-on. Deflation hedge tends to be nominal…Read More

Category: Inflation, Quantitative, Trading

The Euro and You

Frederick Sheehan is the co-author of Greenspan’s Bubbles: The Age of Ignorance at the Federal Reserve.

His new book, Panderer for Power: The True Story of How Alan Greenspan Enriched Wall Street and Left a Legacy of Recession, was published by McGraw-Hill in November 2009. He was Director of Asset Allocation Services at John Hancock Financial Services in Boston. In this capacity, he set investment policy and asset allocation for institutional pension plans.

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Greece may seem a long way from Newport Beach, California. Well, it is. But, we live in the global village, or some other dim construction. In his June 16, 2011, edition of The Credit Strategist, Michael Lewitt explained “the interconnected nature of global financial markets render Europe’s problems the world’s problems…. [T]here is no longer any periphery.”

Lewitt also writes: “The list of interconnections goes on and on….[G]lobal regulators… have no real sense of what type of contagion effect would occur if Greece were to default. No doubt they believe it is significant enough that they are willing to do virtually anything humanly possible to prevent this scenario from unfolding.”

That is demonstrably correct. Since 2007, global bureaucrats have broken any law that has hindered their attempts to ward off our inevitable reckoning. Attempts to prevent a euro eruption have become preposterous. The European Central Bank (ECB) is clearly in extremis.

The interconnections that start with Greece and the ECB wind their way through the European, then U.S., banking systems, government bond yields, and the dollar. Extrapolating the script (“that they are willing to do virtually anything humanly possible…”), the ECB will print euros like never before (and never after, since its credibility will be nil.) Doing so, the ECB will enlighten the perplexed as to the central, financial tendency since 2007: the proportion of “money good” financial paper to the expanding universe of IOU’s is dwindling. As the percentage of worthy paper declines, the relative affection for government issues that would otherwise fail a screen test are, instead, improving. Specifically, the deluge of euros will, all else being equal (an escape clause of Greenspanian inspiration), drive U.S. Treasury yields down.

A week does not go by without the ECB reducing its standards of collateral. The cost is not only its credibility as a central bank (which, in any case, it is not) but in the composition of its deteriorating balance sheet.

To make matters worse, Greece is the smallest economy among the impoverished PIIGS: Portugal, Ireland, Italy, Greece, and Spain. Since others will probably follow Greece, the current impasse is all the more discouraging. The Greek government cannot meet its July interest payment obligations to banks, central and commercial. It can no longer borrow from banks or in the bond markets. (This is also true for Ireland and Portugal, and possibly others.) The Greek government has bills and salaries to pay. The ECB is doing its all to avoid default. This presents a dilemma: the further it goes in preventing (in fact: forestalling) a default by the Greek government, the more it compromises its legitimacy by breaking its own rules and ruining its balance sheet. A credit-sensitive bystander would say the ECB’s legitimacy and balance sheet are cases of the emperor wearing no clothes but conventional opinion being afraid to state the obvious.

Remembering that the euro is an experiment – a currency that is only 13-year-old and not issued by a sovereign government – the European Central Bank should, above all, adhere to the highest standards of integrity.

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Category: Currency, Inflation, Think Tank