FLASH UPDATE - June 13, 2008

JOHN WILLIAMS’ SHADOW GOVERNMENT STATISTICS

FLASH UPDATE

June 13, 2008

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Annual Inflation Surge Begins (4.2% BLS, 11.8% SGS-Alternate)

Monthly Inflation Still Understated

General Outlook Unchanged

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The SGS-Alternate CPI and SGS-Ongoing M3 for May will be updated and posted to the Alternate Data tab of www.shadowstats.com, over the weekend.
 – Best wishes to all, John Williams

As discussed in the June 9th SGS Newsletter, the recent surge in oil prices has been far beyond normal seasonal variations. Accordingly, current seasonally-adjusted monthly CPI inflation continued to understate inflation in May, beyond the biases adjusted for in the SGS-Alternate CPI measure. Nonetheless, the gasoline seasonal adjustments were as promised for the month, and, where the muting effects of seasonal adjustments have been keeping monthly CPI unusually low, that pattern should reverse next month. The seasonal-adjustment reversals, in combination with still-soaring energy prices, promise an ongoing surge in annual inflation for at least the next three months. The upturn in annual inflation seen in May’s reporting was the first since January.

Particularly unbelievable in today’s report was the continued lack of increase in the annual "core" inflation measures, where there is strong anecdotal evidence of spreading inflation pressures and price increases permeating the broader economy. These inflation measures — net of underreported food and energy inflation — increasingly appear to be pure fantasy, aimed at helping Mr. Bernanke in his "inflation fight."

Annual CPI at 4.2% (11.8% SGS-Alternate). The Bureau of Labor Statistics (BLS) reported that the seasonally-adjusted May CPI-U gained 0.65% (0.84% unadjusted) +/- 0.12% for the month, versus the 0.21% (0.61% unadjusted) gain in April. With the CPI-U calculated now to three decimal points, the seasonally-adjusted monthly number was indistinguishable at that level from one that would have rounded up to 0.7% (against expectations of 0.5%). May’s annual CPI inflation rose to 4.18% from April’s 3.94%.

Year-to-year annual inflation will continue its upturn in June 2008 reporting, dependent on the seasonally-adjusted monthly gain exceeding the 0.26% monthly increase seen in June 2007, which now appears likely. The difference would directly add to or subtract from May’s annual inflation rate of 4.18%.

Annual inflation for the Chain Weighted CPI-U (C-CPI-U) — the fully substitution-based series that increasingly gets touted by CPI opponents and inflation apologists as the replacement for the CPI-U — was 3.62% in May, up from 3.45% in April.

Adjusted to pre-Clinton (1990) methodology, annual May CPI growth rose to 7.5%, from 7.3% in April, while the SGS-Alternate Consumer Inflation Measure, which reverses gimmicked changes to official CPI reporting methodologies back to 1980, was at roughly 11.8% in May, versus 11.5% in April. The alternate numbers are not adjusted for any near-term manipulations of the data.

In terms of yesterday’s retail sales report, real monthly (inflation-adjusted) growth for May was 0.37% (unadjusted 1.02%), versus 0.20% (0.41% unadjusted) in April. Real annual retail sales growth continued in contraction, down by 1.73% (up 2.45% unadjusted) in May, versus a decline of 0.97% (up 2.97% unadjusted) in April.

Week Ahead. Wednesday (June 17th) sees the release of May PPI, housing starts and industrial production. The PPI is randomly volatile, but, based on the CPI reporting, it could hit expectations of about 1.0% monthly inflation for May. Underlying fundamentals would suggest something a good deal stronger.  

The housing starts series also is randomly volatile on a month-to-month basis, but it should continue showing historic levels of annual decline otherwise not seen outside of recessions.

Industrial production remains likely to come in shy of expectations of a small gain, contracting again, month-to-month, and very possibly turning negative year-to-year. Such would be the first annual contraction of this recession, and it would be consistent with the continued manufacturing contraction seen in the purchasing managers surveys and ongoing weakness in new orders for durable goods.

Outlook Unchanged. All factors considered, the broad general outlook remains for an intensifying inflationary recession and deepening banking solvency crisis. Over the long term, U.S. equities, bonds and the dollar should suffer terribly, while gold and silver prices should boom. Full details will be covered in the next newsletter.

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The U.S. economy remains in an intensifying inflationary recession, while the banking solvency issues fester. Continuing market turmoil, central-bank/government jawboning and intervention (particularly in the currency and gold markets), increasing economic data distortions and ongoing systemic shocks remain within the general outlook.

Publication of the next regular newsletter should be near the end of June. Intervening Flash Updates and Alerts will be posted as needed. All postings will be advised by e-mail.