If you do not eat or drive, perhaps you joined Wall Street yesterday in celebrating the "good" Consumer Price Index. Then, again ...
Yesterday morning, the Labor Department reported that consumer prices during May rose 0.6%. This was taken by Wall Street as good news, since an inordinate amount of the increase came from sharp rises in food and energy prices.
For consumers who do not engage in things like eating or driving, perhaps the results were acceptable. For the rest of us, the report was less cheery. And as the following table indicates, the CPI, measured year over year, has been getting steadily less cheery for the last few months.
Consumer Producer Import
Price Index Prices Prices
Month/ ---------------------------------------
Year Y/Y L3Mos* Y/Y L3Mos* Y/Y L3Mos*
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05/04 3.0% 5.5% "Postponed" 7.0% 10.9%
04/04 2.3% 3.9% 3.6% 5.3% 4.6% 5.8%
03/04 1.7% 5.9% 1.4% 5.1% 1.1% 11.5%
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*Trailing three-month com-
pound annual rate of change.
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As the above table also shows, the trend in import prices has been behaving the same way, as has that of the Producer Price Index for two of the three months broken out above. The PPI for May was likely not very heartening, either. It was due out last week, but as of just a short while ago, the Labor Department continued to carry the following message on its website:
"The Producer Price Index (PPI) for May 2004, originally scheduled for release on June 11, has been postponed until further notice. BLS staff are working to resolve the unexpected difficulties in calculating the index this month. A revised release date has not yet been set but could be no earlier than Tuesday, June 15. When a revised release date for the May 2004 PPI has been determined, it will be announced at least one day ahead of time on this web page and through a news advisory. The BLS expresses its apologies to those who experience any problems as a result of this delay."
Let's face it. In an environment in which a growing number of people suspect that government inflation data are being "massaged" a little, the above simply does nothing to dispel such suspicions.
Import prices, the Consumer Price Index and the Producer Price Index are three of the four measures we employ in our "Inflation Watch" chart appearing on the GRA website. We will be updating this graph shortly to reflect the latest numbers for the two measures for which new data exist.
These three measures are government series that are probably understating "real-world" inflation a good deal. Nevertheless, analysis of them was still the basis for our providing clients with warnings of coming inflationary pressures well before the fact. And this was when most Wall Street analysts and virtually all high-level Federal Reserve officials were pointing to the same data as "proof" inflation remained subdued. What is that old axiom about beauty, or the lack thereof, being in the eye of the beholder?
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