CPI to Jump in Next Month’s Reporting. Although oil and oil-related prices continue to dominate CPI and PPI inflation reporting, anecdotal evidence continues to mount of higher prices across a much broader spectrum of products and services. A short-lived dip in February energy prices has been followed by higher prices in March, and, accordingly, the CPI and PPI should show fairly strong gains in March’s reporting, following February’s “contained” inflation. Without other issues, such as dollar weakness, eventually — within six-to-nine months — the broader inflation issues also should surface in official reporting. Upside risks for near-term inflation, however, remain severe, coincident with any heavy or panicked selling of the U.S. dollar and dollar-denominated paper assets.

CPI-U.  The Bureau of Labor Statistics (BLS) reported this morning (March 18th) that the seasonally-adjusted February CPI-U was unchanged (up by 0.02% unadjusted) +/- 0.12% (95% confidence interval not seasonally adjusted) for the month, after a 0.17% (0.34% unadjusted) gain in January. Seasonally-adjusted, the CPI-U annualized rate of inflation for the three months ended February 2010 (February versus November) was 1.36%, against January’s 2.19%. Unadjusted, February’s year-to-year inflation was 2.14% +/- 0.20% (95% confidence interval) against a 2.63% annual increase in January.

A temporary monthly dip in February average gasoline prices (down 2.8% unadjusted per the BLS, down 2.5% per the Department of Energy) was the primary depressant in the monthly inflation number, which also lowered year-to-year inflation against higher prices in February of 2009. Resurgent oil and gasoline prices in March 2010 (against weaker inflation in March 2009) promise some upside swing in both the monthly and annual inflation rates for March.

Year-to-year inflation would increase or decrease in next month’s March 2010 reporting, dependent on the seasonally-adjusted monthly change, versus the 0.11% adjusted monthly decline seen in March 2009. I use the adjusted change here, since that is how consensus expectations are expressed. To approximate the annual inflation rate for March 2010, the difference in March’s headline monthly change versus the year-ago monthly change should be added to or subtracted directly from February 2010’s annual inflation rate of 2.14%.

For those interested in exploring the various facets of official CPI-U reporting, I continue to refer you to CPIwatch.com, a site prepared by one of my SGS colleagues.

CPI-W. The narrower, seasonally-adjusted February CPI-W also was unchanged (down by 0.01% unadjusted) for the month, following an increase of 0.36% (up by 0.41% unadjusted) in January. Seasonally-adjusted, the annualized rate of CPI-W inflation for the three months ended February (February versus November) was 2.33%, versus 3.32% in January. Year-to-year CPI-W inflation rose by 2.82% in February, following a 3.34% January increase.

The comment in CPI-U section on gasoline prices applies with even greater force in the CPI-W effects, given the latter series’ heavier weighting of gasoline consumption in the index’s calculation.

C-CPI-U.  The Chain-Weighted CPI-U — the fully substitution-based series that gets touted by CPI opponents and inflation apologists as the replacement for the CPI-U — is reported only on an unadjusted basis. Year-to-year or annual inflation was 2.23% in February 2010, versus 2.84% in January.

Where recent C-CPI-U inflation now is being reported somewhat higher than CPI-U inflation, and where the C-CPI-U in theory should be showing lower inflation, the inconsistencies suggest some reporting difficulties with the CPI series.

Alternative Consumer Inflation Measures. Adjusted to pre-Clinton (1990) methodology, annual CPI eased to roughly 5.5% growth in February 2010 from 6.0% growth in January, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, eased to about 9.4% (9.39% for those using the extra digit) in February, versus 9.8% in January.

The SGS-Alternate Consumer Inflation Measure adjusts on an additive basis for the cumulative impact on the annual inflation rate of various methodological changes made by the BLS. Over the decades, the BLS has altered the meaning of the CPI from being a measure of the cost of living needed to maintain a constant standard of living, to something that no longer reflects the constant-standard-of-living concept. Roughly five percentage points of the additive SGS adjustment reflect the BLS’s formal estimate of the impact of methodological changes; roughly two percentage points reflect changes by the BLS, where SGS has estimated the impact not otherwise published by the BLS.

Gold and Silver Highs Adjusted for CPI-U/SGS Inflation. Even with the December 2, 2009 historic high gold price of $1,212.50 per troy ounce, the prior all-time high of $850.00 (London afternoon fix, per Kitco.com) of January 21, 1980 has not been hit in terms of inflation-adjusted dollars. Based on inflation through February 2010, the 1980 gold price peak would be $2,368 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $7,494 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars. 

In like manner, the all-time high price for silver in January 1980 of $49.45 per troy ounce (London afternoon fix, per silverinstitute.org) has not been hit since, including in terms of inflation-adjusted dollars. Based on inflation through February 2010, the 1980 silver price peak would be $138 per troy ounce, based on not-seasonally-adjusted-CPI-U-adjusted dollars, and would be $436 per troy ounce in terms of SGS-Alternate-CPI-adjusted dollars.

Real Retail Sales.  Based on February 2010 CPI-U reporting, inflation- and seasonally-adjusted monthly February retail sales rose by 0.3%, where before inflation adjustment the current number also was up by 0.3%, versus flat (down 0.02%) monthly real retail sales in January, against a 0.1% gain before inflation adjustment. February real retail sales rose by 1.6% year-to-year, versus a 3.9% gain before inflation adjustment. Real January sales were up 1.4% year-to-year, versus a 4.1% gain before inflation adjustment. As discussed in Commentary No. 285, there remain distortions in the monthly retail sales reporting that should "catch-up" in the next several months along with renewed actual underlying weakness in the series.

For the last 15 months, monthly real retail sales (CPI-U deflated) have been fluctuating around an average of $160.8 billion (the deflated February number was $163.4). Smoothed for monthly volatility on a six-month moving-average basis, as shown in the accompanying graph, the pattern of activity here has shifted to bottom-bouncing in terms of the level of inflation-adjusted sales. The recent bounce from short-lived stimulus effects and warped-seasonals appears to be topping out. There remains no fundamental turnaround in economic activity — no recovery — evident here, just bottom-bouncing, as should be confirmed in the next several months’ reporting

 

 

Oil Softened February PPI. As reported by the BLS, yesterday (March 17th), the regularly-volatile, seasonally-adjusted finished-goods producer price index (PPI) fell month-to-month by 0.6% (down 0.6% unadjusted) in February, following January’s 1.4% (1.2% unadjusted) monthly gain. The February monthly decline primarily reflected a short-lived downward move in oil and energy-related prices. Year-to-year, February’s annual PPI inflation softened to 4.4%, following January’s 4.6% annual gain. 

On a monthly basis, seasonally-adjusted February intermediate goods rose by 0.1% (up 1.7% in January), with crude goods falling by 3.5% (up by 9.6% in January). Year-to-year inflation continued to rise, with February intermediate goods up by 5.6% (up by 4.6% in January) and February crude goods up by 28.6% (up by 25.3% in January).

Week Ahead. Given the underlying reality of a weaker economy (and likely re-intensifying downturn in the coming months) and more serious inflation problems than generally are expected by the financial markets, risks to reporting will tend towards higher-than-expected inflation and weaker-than-expected economic reporting in the months ahead. Such is true especially for economic reporting net of prior-period revisions.

Home Sales (February 2010, New and Existing). Both the existing (due for release Tuesday, March 23rd) and new (due for release Wednesday, March 24th) home sales data for February remain heavily warped by the unprecedented post-World War II volume of foreclosures. Accordingly, the numbers are not too meaningful in terms of reflecting normal market dynamics and activity. The new home sales monthly change likely will remain in the range of statistical insignificance.

New Orders for Durable Goods (February 2010).  Scheduled for release on Wednesday, March 24th, the new orders series is randomly volatile, month-to-month, and the monthly change in either direction likely will be without much significance. The general result should be a continuing pattern of bottom-bouncing.  

Gross Domestic Product — GDP (Fourth-Quarter 2009, Third Estimate). Scheduled for release on Friday, March 26th, the second revision to the fourth-quarter GDP likely will be little more than statistical noise against the second-estimate, first revision, of 5.9% annualized real (inflation-adjusted) growth. The wild card here is in the initial reporting of fourth-quarter gross national product (GDP) and gross domestic income (GDI), either of which may offer a growth rate somewhat divergent from the economic boom currently reported for the quarter’s GDP.