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| July Consumer Price Data (#1) - Aug. 16, 2005 |
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Summary
Earlier today, the Labor Department provided the latest example of why more and more people have less and less confidence in the value of government economic data. The Department's report on consumer price behavior for July did indicate a large jump in the overall CPI during the month, mitigating a little the embarrassment over June's CPI showing no change at all. However, the license taken today by the TV and radio bulls with July's so-called "core" rate of inflation not only is disturbing, it is downright dangerous!
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Earlier today, the Labor Department reported a 0.5% increase in July consumer prices. Based on the numbers contained in this release, the overall CPI was up 3.1% year over year, versus a 2.9% increase for the 12-month period ended July 2004.
The so-called "core" rate, which excludes the unimportant items of food and energy, was up a mere 0.1% for the month and up 2.1% year over year, which compared with a 1.8% gain for the 12 months ended July 2004.
Tout TV and the other venues in the regular propaganda loop were busy today emphasizing the CPI's benign "core" rate. De facto, this is nothing more than an attempt at suggesting the huge increase in energy prices is magically without genuine consequences.
The truth is, someone is eating, in a very unpleasant way, these much higher and still-rising costs. In reality, consumers are eating them in a more significant way than the CPI is reflecting. Remember, great efforts were taken during the 1990s to change CPI and PPI methodology, specifically to transform both measures into more of a "be happy, don't worry" experience. And if consumers aren't the victim of a more pervasive energy-induced inflation jolt, then the corporate sector surely is, certainly suggesting a growing squeeze on margins and profits. (A large volume of corporate "guidance" is reflecting this message.)
(For those who have not yet read it and would additional insight on this overall topic, be sure to refer to John Williams' excellent piece, "Consumer Price Index").
Tomorrow (8/17), Labor releases July producer price data. Last Friday, it released results for July import prices. Soon, I will publish a more detailed examination of the July behavior of all three series.
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