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Tuesday, August 15, 2006

CPI and GVM

Ed wrote: "For forward lookers, the GVM, six months ago predicted that the high range of the CPI for June would be 4.3. The GVM prediction for the National CPI-U for July will be 4.6%. Not a happy fed number!"

I'm thinking the GVM will be wrong on the high side this month. That's not just because of the low PPI numbers. I got to looking at the CPI numbers today after the PPI came out and noticed that for the YOY CPI to go up at all the monthly figure has to come in above +0.6 which is the number that will drop out from last year. I just don't see a number that high this month. As a matter of fact, looking at the next three months in the same manner, I would expect the YOY figures to be declining, because of the high dropout numbers. In other words, the current CPI numbers may well rise from last month's +0.2, but the YOY number will still go down unless we get a far higher than expected (by me anyway) +0.6 or higher. To reach Ed's 4.6 number the July number would have to be +0.9, which I just don't see.

6 Comments:

Blogger Henry Meers said...

I'll let you two figure that one out, but your post is a good example of the lags that "don't get no respect" in the general discourse. Most commentators, however, believe the Fed is going to have to struggle with past inflation coming back to haunt them for several quarters. If it doesn't, things might be worse than anticipated.

Rick Santelli on CNBC this moring was talking about a 42% chance of a FFR increase in the next two months. The Fed may have gone into hibernation for the election. The obvious question becomes what they will do after that.

Absent a personal-income-tax cut, the situation may deteriorate faster than generally expected. The aggregate earnings numbers are masking fallling disposable ("discretionary") incomes. Costs such as gasoline and especially interest rates are steadily cutting into the average taxpayer's spending options by raising the expenses he has to pay day in and day out.

8:32 AM  
Blogger Dick Fox said...

But Henry, if oil and gold continue to decline they could validate the FED pause and we could actually see improvement in the economy with lower inflation.

8:40 AM  
Anonymous Jimi said...

The housing component of CPI will suprise to the high side.

10:27 AM  
Blogger Henry Meers said...

Dick,

What do you mean by inflation, higher prices or a lower dollar?

Interest rates will probably turn out to be the biggest cost increase for the economy and of course the consumer. Short rates have more than doubled quickly, and mortgage rates are several points higher over the last year or so. They could go down and make credit cheaper, or we could cut taxes and give the consumer more of his own money to offset the cost increases.

Tax cutting also validates congressional spending to an extent, because it shows the economy is strong enough to have both, which it is. More importantly, it gives the taxpayers the same rights as the spenders in Washington.

11:21 AM  
Blogger Dick Fox said...

Henry: What do you mean by inflation, higher prices or a lower dollar?

Both, but actually as Jude would say, inflation is a higher POG. I am still hoping that the FED will pause and increased business activity will sop up some of the excess liquidity. If the FED were then to cut the economy would boom and inflation would dive even lower.

2:10 PM  
Blogger David Wood said...

Correction to my original post on this thread: I was looking at the seasonally adjusted numbers, not the non seasonally adjusted ones which are the relevant numbers here. Thus the key figure is +0.5, not +0.6, and the number necessary to reach Ed's 4.6 YOY number is +0.8, not +0.9. I stand by the rest of the post, however.

5:32 PM  

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