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Why Global Inflation Is About To Go Into Overdrive

April 27, 2021

Why Global Inflation Is About To Go Into Overdrive

If you think inflation is already blistering hot –  as most companies and survey respondents clearly do – and the worst case been largely priced in, with little inflationary upside left, think again.

As Bloomberg notes, last week saw the Bloomberg Agriculture Spot Index rise by the most in almost nine years, to extend the stellar rally seen since last August.

Due to the lag between ag costs and finished food prices, the latter are about to soar. And since food is a large component of CPI baskets in Asia, Bloomberg warns that “this large inflationary impulse in the region that houses more than half the world’s population should result in higher wage costs in the factory base of the world. As CPI and PPI rise in Asia, it will feed through globally in the months ahead.”

Think “Arab Spring” (which sparked a domino effect of revolutions in North Africa and the Middle East due to soaring food prices) only in Asia this time… and on steroids. And then read what Albert Edwards wrote in December when he explained why he is “Starting To Panic About Soaring Food Prices.”

Producer Prices Surge. Germany, China, other Countries Are Now Exporting Inflation, Adding to US Inflation Pressures

April 26, 2021

Producer Prices Surge. Germany, China, other Countries Are Now Exporting Inflation, Adding to US Inflation Pressures

Central banks still brush it off as just “temporary.”

Producer prices of German industrial products in March rose by 0.9% from February, after having risen by 0.7% in February from January, and after having spiked by 1.4% in January from December, the biggest month-to-month jump since 2008.

Compared to March last year, producer prices jumped by 3.7%, according to the German Federal Statistics Office (Destatis), the biggest year-over-year jump since November 2011. The surge began last fall, after sharp declines earlier in the year:

Part of what caused the 3.7% increase from March last year — but not the surge over the past few months — is the “base effect“, since in February and March last year the producer price index was declining, and the latest year-over-year results are measured from those low points.

But factory prices have been rising on a month by month basis for the seventh straight months — with large increases over the past three months. And that has nothing to do with the base effect.

Prices of intermediate goods jumped by 5.7% year over year in March, the fastest since July 2011, due mainly to sharp rises in the price of secondary raw material (47%) and prepared feed for farm animals (16%). There were also increases in durable consumer goods (1.4%) and energy (8%), which in large part were driven by a sharp increase in electricity prices (9.6%).

Producer prices are now rising fast in the major manufacturing economies.

In China input costs rose 4.4% in March from a year earlier up from a 1.7% increase in February. It was the sharpest rise since July 2018. As the world’s biggest exporter, China’s rising prices stoke inflation around the world.

…click on the above link to read the rest of the article…

Uh Oh: Consumer Price Inflation Heating Up Fast

April 20, 2021

Uh Oh: Consumer Price Inflation Heating Up Fast

Consumer Price Inflation Heating Up Fast

Anna Shvets

Back in September 2020, we reported on Fed Chairman Jerome Powell’s inability to see a “hidden” inflation offset in energy that camouflaged the rise in overall inflation.

That “hidden” inflation offset has now vanished, and inflation appears to be heating up quickly. Anyone can see it.

Robert Wenzel wrote that price inflation is coming in hot, and in his second update he put a spotlight on gas prices:

The gasoline index continued to increase, rising 9.1-percent in March. For the last 12-months gasoline prices are up by 22-percent.

That’s a pretty big difference. See for yourself! All you have to do is go to the gas station. Alternately, take a look at the AAA National Average Gas Prices chart:

AAA National Average Gas Prices chart April 16 2021

Data from AAA as of 4/16/2021

Here’s a quick summary of the CPI report:

The consumer price index rose 0.6% from the previous month but 2.6% from the same period a year ago. The year-over-year gain is the highest since August 2018 and was well above the 1.7% recorded in February. The index was projected to rise 0.5% on a monthly basis and 2.5% from March 2020, according to Dow Jones estimates. [emphasis added]

Only 0.5% inflation per month? That’s 6% per year. Retirement savers take note: at 6% annual inflation, today’s saved dollar loses about half its value in 10 years.

Over at TheStreet, Mike Shedlock says inflation is rampant and obvious. Why can’t the Fed see it? Wolf Richter shows how the inflation spike would be twice as bad if home prices and durable goods prices were properly measured.

Even Steve Hanke, a notable economist from Johns Hopkins, had something to say on Twitter about Federal Reserve Chairman Powell’s apparent inability to acknowledge the dramatic rise in inflation already taking shape:

You can also see the massive increase in energy price inflation for yourself thanks to the Bureau of Labor and Statistics:

…click on the above link to read the rest of the article…

Inflation, real interest rates revisited

April 17, 2021

Dollar’s Purchasing Power Drops Sharply to Record Low, But It’s a Lot Worse than CPI Shows

April 14, 2021

Dollar’s Purchasing Power Drops Sharply to Record Low, But It’s a Lot Worse than CPI Shows

If the homeownership component in CPI mirrors the Case-Shiller Home Price Index, CPI would jump 5.1%! Not to speak of new & used vehicle prices, which I nevertheless speak of.

The Consumer Price Index jumped 0.6% in March compared to February, the sharpest month-to-month jump since 2009, according to the Bureau of Labor Statistics today, and was up 2.6% from a year earlier, after the 1.7% rise in February.

The infamous Base Effect, which I discussed last week in anticipation of what is now coming, was responsible for part of it: CPI had dipped in March last year, which created a lower base for today’s year-over-year comparison. Over the 13 months since February last year, which eliminates the Base Effect, CPI rose 2.3%.

  • Prices of durable goods continued their upward surge, rising 3.7% from a year ago (purple line);
  • Prices of nondurable goods, which are largely food and energy, including gasoline, jumped 4.2% (green line);
  • Prices of services rose 1.8%. This is the biggie, accounting for two-thirds of overall CPI. It is dominated by a measure for homeownership costs, which ludicrously, as home prices are exploding, merely ticked up 2.0% from a year ago. More on that in a moment.

Consumer price inflation means loss of purchasing power of the consumer dollar, and thereby the loss of the purchasing power of labor denominated in dollars. And the purchasing power thus measured dropped 0.5% in March from February to a new record low, according to the BLS data. Given the insistence by the Fed on perma-inflation, the dollar’s purchasing power keeps dropping from record low to record low:

But wait, it’s a lot worse…

…click on the above link to read the rest of the article…

Rabobank: Inflation Is Being “Hidden” Because Belief In Our Whole Fantasy System Is Collapsing

March 11, 2021

Rabobank: Inflation Is Being “Hidden” Because Belief In Our Whole Fantasy System Is Collapsing

Because Orcs

“And as if in answer there came from far away another note. Horns, horns, horns, in dark Mindolluin’s sides they dimly echoed. Great horns of the north wildly blowing. Rohan had come at last.”

Today is going to be dominated by the market pricing in US fiscal stimulus for the nth time, unless we buy the rumor and sell the fact: and it’s rumors and facts I want to address. US CPI yesterday saw headline inflation in line with consensus at 0.4% m/m and rising from 1.3% to 1.7% y/y, but core inflation a tick lower at 0.1% m/m and so dipping to 1.3% y/y. On the back of that, and a moderate US 10-year auction, US equities rose (the S&P up 0.6%); US bond yields dipped, (10s down 6bp from their intraday peak to close at 1.52%); and USD wobbled.

The CPI release included a footnote stating:

“…data collection in February was affected by the temporary closing or limited operations of certain types of establishments. These factors resulted in an increase in the number of prices considered temporarily unavailable and imputed. While the CPI program attempted to collect as much data as possible, many indexes are based on smaller amounts of collected prices than usual, and a small number of indexes that are normally published were not published this month.”

Or, to put it differently, ‘We did our best, but made some of it up’.

This rightly worried some people: is inflation being ‘hidden’?…

…click on the above link to read the rest of the article…

 

Dollar’s Purchasing Power Drops to Record Low, Despite Aggressive “Hedonic Quality Adjustments”

February 11, 2021

Dollar’s Purchasing Power Drops to Record Low, Despite Aggressive “Hedonic Quality Adjustments”

Spiking prices for new and used vehicles under the microscope.

The “Purchasing Power of the Consumer Dollar” – part of the Bureau of Labor Statistics’ Consumer Price Index data released today – is the politically incorrect mirror image of inflation in consumer prices, as measured by the Consumer Price Index (CPI). By wanting to increase consumer price inflation, the Fed in effect wants to decrease the purchasing power of the consumer dollar, to where consumers have to pay more for the same thing. Thereby it wants to decrease the purchasing power of labor paid in those dollars.

And that purchasing power of the dollar in January dropped by 1.5% year-over-year to another record low:

Note how the purchasing power of the dollar recovered for a few months during the Financial Crisis, when consumers could actually buy a little more with the fruits of their labor. The Fed considered this condition a horror show.

Inflation in durable goods, non-durable goods, and services.

The overall CPI for urban consumers, the politically correct way of expressing the decline in the purchasing power of the dollar, rose 1.4% in January, compared to a year earlier.

Each product that is in the basket of consumer goods tracked by the CPI has its own specific CPI. And all these products fall into three categories: durable goods (black line), nondurable goods (green line), and services (red line), with services accounting for 60% of the overall CPI. Here they are, with discussions below:

The CPI for services (red line) – everything from rent to airfares – increased mostly between 2% and 3% year-over-year for the last decade, but dropped during the Pandemic as demand for services such as hotels, flights, and cruises collapsed. For example, in January, year-over-year, the CPI for:

  • Airline tickets: -21.3%
  • Hotels: -13.3%
  • Admission to sporting events: -21.4%.

…click on the above link to read the rest of the article…

 

BoE Keeps Policy Unchanged, Tells Banks To Start Preparing For Negative Rates “If Necessary” But Sees Spike In Inflation

February 4, 2021

BoE Keeps Policy Unchanged, Tells Banks To Start Preparing For Negative Rates “If Necessary” But Sees Spike In Inflation

The Bank of England kept its stimulus program unchanged on Thursday. The BoE maintained its Bank Rate at 0.1% and left the size of its total asset purchase programme at 895 billion pounds in a unanimous decision, as expected.

Growth and Inflation

On QE, the BOE said that “if needed, there was scope for the Bank of England to re-evaluate the existing technical parameters of the gilt purchase programme” but that is unlikely since the BOE’s growth forecast was far stronger than previously:

  • UK GDP is expected to have risen a little in 2020 Q4 to a level around 8% lower than in 2019 Q4.
  • This is materially stronger than expected in the November Report.
  • While the scale and breadth of the Covid restrictions in place at present mean that they are expected to affect activity more than those in 2020 Q4, their impact is not expected to be as severe as in 2020 Q2, during the United Kingdom’s first lockdown.
  • GDP is expected to fall by around 4% in 2021 Q1, in contrast to expectations of a rise in the November Report.
  • Global GDP growth slowed in 2020 Q4, as a rise in Covid cases and consequent restrictions to contain the spread of the virus weighed on economic activity. Since the MPC’s previous meeting, financial markets have remained resilient.

The BOE also said that CPI inflation was expected to rise quite sharply towards the 2% target in the spring, as the reduction in VAT for certain services comes to an end and given developments in energy prices. In the MPC’s central projection, conditioned on the market path for interest rates, CPI inflation is projected to be close to 2% over the second and third years of the forecast period.

…click on the above link to read the rest of the article…

Core CPI Crashes By Most On Record; Food Costs Soar As Energy & Apparel Collapse

May 12, 2020

Core CPI Crashes By Most On Record; Food Costs Soar As Energy & Apparel Collapse

Headline Consumer Prices fell 0.8% MoM – the biggest drop since 2008 – as soaring food inflation was dominated by plunging energy, apparel, and lodging costs…

But it was Core CPI, printing 0.4% MoM that made the headlines. That is the biggest monthly decline since records began in 1961…

Under the hood, the changes were dramatic to say the least…

A 20.6-percent decline in the gasoline index was the largest contributor to the monthly decrease in the seasonally adjusted all items index, but the indexes for apparel, motor vehicle insurance, airline fares, and lodging away from home all fell sharply as well.

Goods deflation is accelerating as Services inflation is slumping…

In contrast, food indexes rose in April, with the index for food at home posting its largest monthly increase since February 1974.

Shelter Inflation up only 2.61%, down from 3.01% in March, and the lowest since Feb 2014. Rent inflation up 3.49%, down from 3.67% in March but lowest only since Jan 2019.

Given the near total lockdown of the US, we do question just how “real” this data is (and the fact that rent strikes, mortgage forbearance, food banks, UBI, PPP, and you name the acronym have distorted all the inputs).

Median CPI Runs Hot, Fed Averts Eyes

February 15, 2020

Median CPI Runs Hot, Fed Averts Eyes

Despite the Fed’s proclamations, the dollar lost purchasing power at a good clip.

The inflation measure by the Cleveland Fed – the “Median CPI” – rose at 0.3% in January from December. This translates into an annualized rate of 3.7%. For the 12-month period, the Median CPI rose 2.9%. Since July last year, the index has ranged between 2.9% and 3.0%, the highest in the data series launched during the Financial Crisis.

The Median CPI is based on the data from the Consumer Price Index (CPI) but removes the extremes of price increases and price decreases, that are often temporary, to reveal underlying inflation trends. The chart shows the 12-month Median CPI, and for comparison, the “core CPI,” (CPI without the volatile food prices and the extremely volatile energy prices):

The re-collapse in oil prices pushed down inflation in gasoline and fuel oil, with the price index for motor fuels dropping -1.6% in January from December, which translates into an annual rate of -17.3%. Fuel oil and other fuels dropped at an annual rate of -15.8% in January, and used cars and trucks dropped at an annual rate of -13.5%.

At the other end of the spectrum, the price index for miscellaneous personal goods soared at an annual rate of +41% in January from December, watches and jewelry at a rate of +27.0%, footwear at a rate of +17.0%, car-and-truck rental at +15.0%.

These extremes at both ends of the spectrum, often brought about by temporary factors, skew the CPI and make it very volatile, where it jumps up and down. To obtain a measure of inflation that is not skewed by the often-temporary extremes on either end, and to show the underlying inflation trends, the Cleveland Fed’s Median CPI removes the extremes at both ends.

…click on the above link to read the rest of the article…

The CPI Understates Inflation Skewing Our Expectations

August 17, 2019

The CPI Understates Inflation Skewing Our Expectations 

The purpose of the consumer price index (CPI) is to reflect just how much inflation is eating into both our incomes and our savings. Consumer inflation has been estimated since the 1700s, by measuring price changes in a fixed-weight basket of goods. This method was seen as a way of measuring the cost of maintaining a constant standard of living. In the last 30 years, a growing gap has become obvious between government reporting of inflation, as measured by the CPI, and the perception of actual inflation held by the general public.

Currently, the government understates inflation by using a formula based on the concept of a “constant level of satisfaction” that evolved during the first half of the 20th century in academia. This extended into the BLS re-weightings sales outlets such as discount or mass merchandisers with Main Street shops. Those promoting this change claim it is simply another way to measure inflation and it still reflects the true cost of living. Politicians touting the benefits of this system created it as a way to reduce the cost of living adjustments for government payments to Social Security recipients, etc. By moving to a substitution-based index and weakening other constant-standard-of-living ties those reporting inflation have muddied the water as to just how much we are being impacted by inflation.

The general argument was that changing relative costs of goods results in consumers substituting less-expensive goods for more expensive goods.  Allowing for a substitution of goods within the formerly “fixed-basket” would allow the consumer flexibility in obtaining a “constant level of satisfaction.” This adjustment to the inflation measure was touted as more appropriate for the GDP concept in measuring shifting demand and weighting actual consumption. Other tricks were also used to give the illusion of less inflation.

 …click on the above link to read the rest of the article…

Peter Schiff: The World Will Drown in an Ocean of Inflation; Gold Is Going Ballistic

August 15, 2019

Peter Schiff: The World Will Drown in an Ocean of Inflation; Gold Is Going Ballistic

The gold market took a one-two punch on Tuesday as Trump made some concessions in the trade war and inflation numbers came in a bit higher than expected. Peter Schiff talked about it in his latest podcast, saying gold traders still don’t understand the gold rally.

Stock markets surged as gold and silver dropped after US trade representatives said they would delay some of the additional tariffs recently announced by President Trump. The Dow closed 372 points higher. Meanwhile, the price of gold dropped below $1,500 briefly before rallying back above that key number.

Gold actually began selling off before the trade war news when the Consumer Price Index number came in hotter than expected. Peter said he knew that would happen.

That is the way the lemmings trade, because according to the conventional wisdom, if inflation is higher, then the Fed will be less likely to cut rates. After all, they’re cutting rates because inflation is too low and if inflation comes in hotter, well, then there’s less of a reason for the Fed to cut rates. So paradoxically, higher inflation is seen as being bad for gold. And the reason I’m saying paradoxically is because gold is an inflation hedge. Normally, the more inflation the more you want to buy gold.”

Peter said investors are banking on the Fed fighting inflation, but they’re wrong.

There is no way the Fed is going to fight inflation. I don’t care how high it is … One of these days the traders have to realize that these numbers don’t matter. I mean, maybe they matter to the public who has to live with a rising cost of living. But they don’t matter to the Fed. The Fed is going to take rates back to zero no matter what these numbers are, because the economy is going into recession even as inflation rises.”


 …click on the above link to read the rest of the article…

Markets Might Hafta Grapple with “Patient”: Fed Rate Cut in July After This Inflation?

June 30, 2019

Markets Might Hafta Grapple with “Patient”: Fed Rate Cut in July After This Inflation?

Not a rate-cut economy.

The inflation index that the Fed has anointed to be the yardstick for its inflation target – the PCE price index without the volatile food and energy components – rose 0.19% in May from April, according to the Bureau of Economic Analysis this morning. This increase in “core PCE” was near the top of the range since 2010. It followed the 0.25% jump in April, which had been the third largest increase since 2010:

Fed Chair Jerome Powell, at the press conference following the no-rate-hike FOMC meeting last week, gave a clear and succinct summary of the US economy. It was mostly in good shape, he said, in particular where it mattered the most: “All of the underlying fundamentals for the consumer-spending part of the economy, which is 70% of the economy, are quite solid,” he said.

He acknowledged that there were some problems, including the slowdown in manufacturing and the current bust in the vast US oil-and-gas sector, and that the Fed would be watching for further deterioration in the economy, before it would take action. But “low” inflation was another matter.

Sustained “low” consumer-price inflation – as the Fed defines it – worries the Fed, though it’s a godsent for consumers. If inflation, as measured by the core PCE price index, drops in a sustained manner below the Fed’s pain threshold, wherever that may be, the Fed would likely adjust monetary policy no matter what the economy does.

The Fed’s “symmetric” target is a 2% annual increase in the core PCE index, meaning the increase can fluctuate some above or below the target without causing the Fed to act.

 …click on the above link to read the rest of the article…

Stupidity Well Anchored: Absurdity of Inflation Expectations in Graphic Form

February 24, 2019

Stupidity Well Anchored: Absurdity of Inflation Expectations in Graphic Form

The amount of sheer nonsense written about inflation expectations is staggering.

Let’s take a look at some recent articles before making a mockery of them with a single picture.

by Mish

Expectations Problem

On July 17, 2017, Rich Miller writing for Bloomberg proclaimed The Fed Has an Inflation Expectations Problem.

Expectations matter because they shape how households and companies act and thus can go a long way in determining where inflation actually ends up. Consumers accustomed to meager inflation will resist paying up for goods and services.
“Lower inflation expectations make it all the more difficult for the central bank to achieve its inflation objective,” Charles Evans, president of the Chicago Fed, said in remarks posted on the bank’s website on July 14.

Key Element

The Business Insider says The Fed is missing a key sign of economic weakness coming from American consumers.

Andrew Levin, a career Fed economist who was a special adviser to Fed Chairman Ben Bernanke, told Business Insider he was worried by a noticeable decline in inflation expectations, both as reflected in consumer surveys and bond-market rates.
“The reality is that the longer-term inflation expectations of consumers and investors have shifted downward by about a half percentage point. Thus, even with the economy moving towards full employment, it’s not surprising that core PCE inflation remains about a half percentage point below the Fed’s inflation target,” he said, referring to a closely watched reading indicator that excludes food and energy costs.
“If the FOMC continues to ignore the downward drift in inflation expectations and simply proceeds with its intended path of policy tightening, actual inflation is likely to keep falling short of the Fed’s target and might well decline even further,” he said.

Janet Yellen Yesterday

In a brief speech following yesterday’s FOMC announcement Janet Yellen made these statements.

 …click on the above link to read the rest of the article…

“Real” Inflation Expected to Rise – Hedge Your Bets With Gold

January 19, 2019

“Real” Inflation Expected to Rise – Hedge Your Bets With Gold

hedge against real inflation with gold

Some are under the impression that gold’s performance in the U.S. is not as good as it should be, considering we had a rather uncertain year last year.

In the U.S., even economists who favor the dollar gold price might be blind to an upcoming rise in the financial power of the precious metal.

That, and real inflation may become a better gauge to see just how well this measuring stick is doing. Though revealing it at the federal level may send the market into a panic.

The “Dollar as Yardstick” Problem

According to Ross Norman at Sharps Pixley, using the dollar’s strength to measure net worth in the U.S. could give you the impression that we have a “strong dollar.” But that yardstick shrinks as inflation eats into it. This means using the dollar as a “yardstick” for measurement isn’t consistent.

Using inflation as a gauge for shrinkage can give you a decent picture of how “strong” or “weak” the dollar’s measure is, assuming you’re using an accurate gauge.

As Norman explains (emphasis ours):

Measuring our net worth in local currencies, we might be rather pleased with ourselves – smug even. However we chose to ignore the fact that the yardstick is not a constant … it is shrinking and sometimes really quite fast. It’s the natural corrosive effect of inflation. Knowing this, governments give us a gauge for yardstick shrinkage to use such as RPI or CPI, to reassure you that the shrinkage is minimal… and then lie about it.

For those who don’t know some of the terms Norman uses, the CPI is the Consumer Price Index, which is compiled by the Bureau of Labor and Statistics (BLS) and used by agencies like the Fed. The Retail Price Index (RPI) is essentially the same thing, but based in the UK.

…click on the above link to read the rest of the article…

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