Friday, December 16, 2011

A CPI Christmas present


The November CPI report was uneventful, but if anything it's a nice Christmas present because it shows that inflation is not the problem that so many—including me—have worried about, at least for now. Most measures of inflation in fact have been relatively tame in recent months, showing inflation to be running at about a 2% annual rate, which is nothing at all to be concerned about.


The first chart above shows the year over year change in inflation, while the second shows the 6-mo. annualized rate of inflation. Using more recent data, this second chart highlights the relatively tame nature of current inflation.


Falling energy prices have been a big part of the reason inflation has been so tame. This chart shows the CPI ex-energy, but even that is only running at 2.4% over the past six months.



Natural gas prices have fallen significantly, thanks to huge new discoveries and production in the U.S. As Mark Perry notes, in looking at the CPI report, natural gas is "the only item that has fallen in price over the last 12 months (-1.3% vs. a 19.7% increase in gasoline)." If anything is disruptive, this is, because (as the second chart above shows) natural gas has now become incredibly cheap relative to oil. This is going to transform energy-intensive industries and enrich the lives of everyone.

I'm not letting down my inflation guard, however, but for the time being my level of concern has eased, and that adds to my belief that the outlook for the economy is better than most people think.

5 comments:

Benjamin said...

"The November CPI report was uneventful, but if anything it's a nice Christmas present because it shows that inflation is not the problem that so many—including me—have worried about, at least for now. "

Finally! Now I can die and go to heaven.

Add on: Time for the Fed to get aggressive about growth.

see marketmonetarism.com

John said...

Perhaps a more important statistic is household formations and marriage rates, which have dropped. The unemployed and itinerant workers can't afford to settle down.

Ed Dolan said...

If you read the latest numbers closely, we not only don't have to worry about inflation--we have to start worrying about deflation. See details here: http://tiny.cc/0bf8w

William said...

Just learned that the ECB increased its asset base by 75% and the Swiss Central Bank its asset base by 300% in the "last few months" according to Jim Grant in video interview on Bloomberg.

http://www.bloomberg.com/video/82880196/

Bob said...

John,

Although I don't disagree with you, I would add that it is more of a function of a move to a socialist government.

Young people don't get married and form households when government entitles them to not do so. It is a phenomenon of seculal humanism to discourage taditional values based on religious tenents and it manifests itself in government policy that encourages, through entitlement, the destruction of the family unit.

I know in my family and close friend circle a number of young women who are mothers and not married and have done so expressly because they could deliver the child and receive subsidy beyond what they could afford to do on their own.

Bob