If this is a mid-month Friday, it must be time for the preliminary Reuters/University of Michigan U.S. Consumer Sentiment Index. And, sure enough, it is. This morning's report showed a blip up in consumer confidence, fueled by expectations of lower inflation and even downright deflation.
More than a third of consumers surveyed—37%—expect flat or negative inflation in the coming year. Overall, the consensus inflation expectation dropped a full percentage point, to 2.9%, from the level reported in last month's survey.
And here's where the economic tires hit the road. Survey respondents, of course, are focused on that manifestation of inflation most important to them: price changes reflected in the Consumer Price Index (CPI).
We won't get the new batch of that government-supplied inflation indicator until next week. The most recent CPI reading, at 4.9%, seemingly tipped into disinflation from the previous month's 5.4% rate. Inflation wasn't killed off though. That 4.9% still represents a ratcheting up of prices from the 4% CPI registered six months before.
We keep track of inflation at Hard Assets Investor with a couple of metrics. On the morning the CPI is released, we publish our Breakfast Index, a price indicator based upon an average of eight commodities found on the typical breakfast table. Trends in commodity futures prices ripple through the wholesale market, measured by the Producer Price Index (PPI), eventually surfacing in the shelf prices of goods measured by CPI. Our Breakfast Index provides clues to potential trends in consumer prices.
At our last look, in October ("Putting The Squeeze On Inflation At Breakfast"), breakfast food futures prices had taken a 14% tumble over the preceding quarter:
Breakfast Index (September 2008)
Commodity |
Contract Month |
30-Jun-08 Price |
30-Sep-08 Price | 3-Month Change (%) | Annualized Change (%) |
Butter, AA | October ‘08 | 157.25 ¢/lb | 168.00 ¢/lb | 6.8 | 30.0 |
Pork Bellies (Bacon) | February ‘09 | 97.250 ¢/lb | 93.750 ¢/lb | -3.6 | -13.5 |
Sugar #11 | March ‘09 | 14.62 ¢/lb | 13.66 ¢/lb | -6.6 | -23.6 |
Coffee | December ‘08 | 157.25 ¢/lb | 130.45 ¢/lb | -16.8 | -51.8 |
Milk, Class III | October ‘08 | $20.02/cwt | $16.56/cwt | -17.5 | -53.5 |
Cocoa | December ‘08 | $3,162/tonne | $2,558/tonne | -19.0 | -56.8 |
Wheat | December ‘08 | $8.8175/bu | $6.8000/bu | -22.9 | -64.3 |
Orange Juice | November ‘08 | 125.75 ¢/lb | 89.20 ¢/lb | -29.1 | -74.4 |
Average | -13.6 | -38.5 |
We also found the backup in wholesale level inflation moderated in fall. The spread between the farm price and finished food price PPI subsets ratcheted down more than 5% since July.
Producer Prices: Farm Products Vs. Finished Food
A broader and more immediate measure of purchasing power is taken by our Real-Time Monetary Inflation Indicator. Using gold as a monetary constant, we daily gauge the dollar's strength in the foreign exchange market to impute an annual inflation rate. Looking at inflation as a monetary phenomenon produces a rate wildly different from that indicated by CPI (see "Computing Inflation In Real Time" for background). Using this metric, we can see that the degradation of dollar purchasing power actually reversed in spring and has now declined to an annual rate of 7.7%.
Monetary Inflation Rate
So far, there appears no base-building in the monetary inflation rate, but yesterday's 7.7% rate tested the level reached back on October 29.
The next few days leading into Wednesday's CPI release ought to be real interesting.
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This article has 19 comments:
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Consider_this
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91 Comments
Nov 14 04:34 PMDeflation is the opposite of inflation. Therefore, under the usual contemporary definition of inflation, 'deflation' means a decrease in the general price level.
Interesting thing this article pointed out: the rate of inflation according to the graph / analysis above, has gone down 7.7% since spring.
Consider that overall inflation was running previously at 5.4% rate, and 4.9% in this month; we don't really have a lot of leeway to give before the overall inflation is zero or negative.
If that happens, that will be the first even deflationary period since the 1930.
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Herbert Hoover
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396 Comments
Nov 14 04:54 PM-
Consider_this
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91 Comments
Nov 14 05:40 PMInflation of prices of items (not produced in the country) without corresponding increase in *WAGES* of people is actually deflationary.
It's not hard to envision why if wages don't have inflation, price inflation ends up deflationary overall.
In the end, true inflationary spiral can happen only if WAGE is also inflating.
My problem is that with global arbitration of wages; and production capacity of GOODS and ENERGY is outside of the country; and outsourcing controlling wage increase domestically; the only way you can get into an inflationary spiral within the USA; is if USD complete depegs with the rest of the world and goes into a downward spiral.
However, that kind of inflation-attempt would happen with a high price: Cutoff of foreign goods and energy (too expensive); Cutoff of govt funding; Removal of USD as a reserve currency.
Because we will lose (reasonably priced) energy and foreign goods, whether the economy will end up collapsing completely, thereby skipping wage increase (to increase wage, you need to have functioning economy and jobs), or be able to go into an inflation period, is unclear.
This is the part that inflation scenario arguments that I cannot find. In pre-globalization days, it is possible to have Germany style chaos; In modern integrated era, WHAT IS THE MECHANISM to achieve overall wage gain?
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cristian
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29 Comments
Nov 14 06:11 PM-
dw57
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82 Comments
Nov 14 06:45 PMOn Nov 14 05:40 PM Consider_this wrote:
> Response to Hervert Hoover,
>
> Inflation of prices of items (not produced in the country) without
> corresponding increase in *WAGES* of people is actually deflationary.
>
>
> It's not hard to envision why if wages don't have inflation, price
> inflation ends up deflationary overall.
>
> In the end, true inflationary spiral can happen only if WAGE is also
> inflating.
>
> My problem is that with global arbitration of wages; and production
> capacity of GOODS and ENERGY is outside of the country; and outsourcing
> controlling wage increase domestically; the only way you can get
> into an inflationary spiral within the USA; is if USD complete depegs
> with the rest of the world and goes into a downward spiral.
>
> However, that kind of inflation-attempt would happen with a high
> price: Cutoff of foreign goods and energy (too expensive); Cutoff
> of govt funding; Removal of USD as a reserve currency.
>
> Because we will lose (reasonably priced) energy and foreign goods,
> whether the economy will end up collapsing completely, thereby skipping
> wage increase (to increase wage, you need to have functioning economy
> and jobs), or be able to go into an inflation period, is unclear.
>
>
> This is the part that inflation scenario arguments that I cannot
> find. In pre-globalization days, it is possible to have Germany style
> chaos; In modern integrated era, WHAT IS THE MECHANISM to achieve
> overall wage gain?
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dw57
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82 Comments
Nov 14 06:47 PMlook out below!
On Nov 14 04:54 PM Herbert Hoover wrote:
> The Fed's printing presses are running 24/7. Deflation would be an
> even bigger disaster to the real estate market. The "public" may
> think there's disinflation but I'm willing to bet that we'll be seeing
> an inflation rate similar to the late 1970's within the next two
> years. It's the only way to save real estate.
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dshort
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23 Comments
My Website
Nov 14 06:57 PMdshort.com/inflation/i...
The chart also shows post 1982 inflation if the BLS had the same method as it employed from 1913 to 1982. See shadowstats.com for a full explanation of the alternate CPI, which is tracked at that website.
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E.D.Hart
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25 Comments
Nov 14 07:12 PMSee the 1970's.
Also, it is possible to have rising wages and falling prices, or relatively low inflation. With rising productivity faster than the money supply increasing.
Wage growth can be greater than or lesser than the rate of the increase in prices.
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sickofthehype
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236 Comments
Nov 14 11:50 PMThe most interesting thing is how quickly ANY deflation of the past was immediately reverted to INflation - within a very short amount of time.
It's not a matter of IF but WHEN inflation will hit. Any possible DEflation is temporary, and obviously the gov't's inflationary campaign is designed to make debt worthless and prop up real estate. It will work in time, but the key is in putting on the brakes once it's in motion.
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John the economist
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4 Comments
Nov 15 02:58 AMYOU CAN ONLY HAVE INFLATION WHEN THERE ARE RISING WAGES... ITS A FACT IN THE LONG RUN.
Oh sure very short blips either way happen all the time but take it out 2-3 years and it has never occured. NOT EVER.
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kball
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1 Comment
Nov 15 09:29 AMOn Nov 15 02:58 AM John the economist wrote:
> A previous poster obviously didnt make it clear to most of you.
>
>
> YOU CAN ONLY HAVE INFLATION WHEN THERE ARE RISING WAGES... ITS A
> FACT IN THE LONG RUN.
>
> Oh sure very short blips either way happen all the time but take
> it out 2-3 years and it has never occured. NOT EVER.
>
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Dean Plassaras
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50 Comments
Nov 15 09:48 AMwww.financialsense.com...
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sickofthehype
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236 Comments
Nov 15 09:53 AMPerhaps there will be more of a distance between businesses that sell products versus service oriented businesses.
Anyhow - wage pressure will build once inflation takes off, but regardless the mid 1970's will be eerily familiar.
Carter, an unknown Democrat promoting CHANGE, was elected into office and an inflationary campaign was created. Then 4 years later we needed 21% prime rate to halt the measures in motion. Then a recession in the early 80's occured. We could be in for a similar pattern.
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John Lounsbury
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637 Comments
My Website
Nov 15 12:28 PM(1) Johnson's guns and butter fiscal irresponsibility (Vietnam War and printing the money to pay for it and the Great Society),
(2) Nixon's removal of the gold standard and ill conceived attempts at price controls.
(3) The oil embargo and 300% price rise when we were even more dependent on enrgy in our economy than we are today.
If you want to include Carter on this list please be specific as to why. And please say something more than that he was an ineffective president, which is an opinion few will argue with.
On Nov 15 09:53 AM sickofthehype wrote:
> After the short blip of inflation taking off there will be inflationary
> pressures on employers as well. Raw materials, supplies, etc, will
> all go up in price, forcing businesses to charge more.
>
> Perhaps there will be more of a distance between businesses that
> sell products versus service oriented businesses.
>
> Anyhow - wage pressure will build once inflation takes off, but regardless
> the mid 1970's will be eerily familiar.
>
> Carter, an unknown Democrat promoting CHANGE, was elected into office
> and an inflationary campaign was created. Then 4 years later we needed
> 21% prime rate to halt the measures in motion. Then a recession in
> the early 80's occured. We could be in for a similar pattern.
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fran
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242 Comments
Nov 15 12:37 PMremove yourselves from the present age and return to an age of barter. a person's productive effort was traded for another person's productive effort. the most productive persons using the known supply/demand circumstances of the time would benefit the most[wealth accumulation?]. if that person used the accumulated wealth to hire "help", the help was paid on the basis of his productivity[increased wheat supply or size of flock]. no productivity, no wage growth; no work, no wage.
fast forward to today--
productivity? vs expected wage growth?
fiat currency[paper promises] vs bushels, wool, or lamb chops.
gov't printing digital dollars from thin air[fiat dollars] vs real wheat, corn, sheep, barrels, plows, tools, etc. akin to an alchemist making counterfeit grain, wool or gold--soon to be found phony, unproductive, and hung. society purged the counterfeit stuff and readjusted to previous market conditions.
without alchemists[fiat currency, counterfeiters], maintaining sound barter standards, society/markets can grow, productivity can increase, asset wealth can grow. perhaps not rapidly, but orderly[ infrequent boom/bust catastrophies].
HAVE WE MOVED FAR FROM TRUE MARKETS? IN AN ORDERLY WAY? WHY? WHAT CAUSES? ARE WE UNDER THE SPELL OF ALCHEMISTS???
signed: GERRY MANDER
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RTF 360
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13 Comments
My Website
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Scorpio50
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3 Comments
My Website
Nov 15 08:02 PMOn Nov 14 04:34 PM Consider_this wrote:
> According to Wikipedia: Disinflation is a decrease in the rate of
> inflation.
> Deflation is the opposite of inflation. Therefore, under the usual
> contemporary definition of inflation, 'deflation' means a decrease
> in the general price level.
>
> Interesting thing this article pointed out: the rate of inflation
> according to the graph / analysis above, has gone down 7.7% since
> spring.
>
> Consider that overall inflation was running previously at 5.4% rate,
> and 4.9% in this month; we don't really have a lot of leeway to give
> before the overall inflation is zero or negative.
>
> If that happens, that will be the first even deflationary period
> since the 1930.
-
Managing Editor
-
130 Comments
My Website
Nov 16 11:17 AMThe Bureau of Engraving and Printing hasn't stepped up the minting of new currency--YET. What happens first is an increase in the issuance of Treasury bills, notes and bonds. Increased Federal Reserve Note production follows as tranches of bills and notes are redeemed.
The indicator can head downward during the current disinflationary phase before turning north when the dollar's reinflated.
On Nov 14 05:40 PM Consider_this wrote:
> Response to Hervert Hoover,
>
> Inflation of prices of items (not produced in the country) without
> corresponding increase in *WAGES* of people is actually deflationary.
>
>
> It's not hard to envision why if wages don't have inflation, price
> inflation ends up deflationary overall.
>
> In the end, true inflationary spiral can happen only if WAGE is also
> inflating.
>
> My problem is that with global arbitration of wages; and production
> capacity of GOODS and ENERGY is outside of the country; and outsourcing
> controlling wage increase domestically; the only way you can get
> into an inflationary spiral within the USA; is if USD complete depegs
> with the rest of the world and goes into a downward spiral.
>
> However, that kind of inflation-attempt would happen with a high
> price: Cutoff of foreign goods and energy (too expensive); Cutoff
> of govt funding; Removal of USD as a reserve currency.
>
> Because we will lose (reasonably priced) energy and foreign goods,
> whether the economy will end up collapsing completely, thereby skipping
> wage increase (to increase wage, you need to have functioning economy
> and jobs), or be able to go into an inflation period, is unclear.
>
>
> This is the part that inflation scenario arguments that I cannot
> find. In pre-globalization days, it is possible to have Germany style
> chaos; In modern integrated era, WHAT IS THE MECHANISM to achieve
> overall wage gain?
-
Milos Sugovic
-
1 Comment
My Website
Nov 21 02:26 PM