New data for inflation for the U.K. and U.S. was released this morning. As has been the case since the beginning of the financial crunch, reported data for the U.S. continues to suggest that inflation is tame. This, of course, is at odds with real life experience, which suggests the opposite.
The Producer Price Index (PPI) edged lower 0.1% last month, the second decline in the past 3 months, the Labor Department said Tuesday. Core inflation, which excludes energy and food rose 0.2%, slightly faster than expected. But over the past year, core prices are up just 1%. Core prices, an invention of the government, are hardly representative of anecdotal experience since they assume that no one eats or drives.
For April, food costs dipped by 0.2%. It was the first decline in 9 months and came after a 2.4% surge during the previous month - the largest gain in 26 years. The March increase reflected the impact of a winter freeze in Florida that heavily damaged citrus and vegetable crops. Energy prices fell 0.8% in April with gasoline prices down 2.7%.
In the U.K., the reported numbers were far less sanguine.
Inflation leapt to 3.7% in April, significantly higher than expected, prompting a letter of explanation from the governor of the Bank of England to the new Chancellor George Osborne.
The annual inflation rate of the British Consumer Price Index (CPI) was up from 3.4% in March and well above the Bank’s 2% target. Economists had projected inflation to hit 3.5% this month.
The retail price index measure of inflation jumped even higher to 5.3% in April from 4.4% in March and reached its highest since 1991. The retail price index is used as a benchmark for many public sector contracts, benefits payments and wage settlements.
The further rise in inflation will prove sticky for the Bank of England. Interest rates are still at 0.5% and the Bank pumped £200 billion in newly created cash into the economy to fight the recession.
This news comes after many Asian countries are also experiencing various aspects of inflation - especially in the form of what appears to be housing bubbles. The housing price escalation is particularly prevalent in China and Australia. We have written two very recent blogs on the issues which can be reviewed by clicking http://markostake.blogspot.com/2010/05/asian-inflation-contagion.html and http://markostake.blogspot.com/2010/05/rising-chinese-inflation-augurs-well.html.
One has to remain vigilant as to the accuracy of inflation data as reported by the Labor Department. As we've also pointed out in various pieces, the methodology for computing the CPI has been altered several times since the beginning of the Clinton Administration. The effect of these alterations has been to substantially reduce the reported number. According to Shadow Stats (http://www.shadowstats.com/), the CPI would be reported at closer to 6% if the pre-Clinton methodology was still employed today.
The important thing to keep in mind is that the PPI and CPI are not necessarily indicative of what any individual will actually experience. A better measure is to review your outflows and compare them to the past. If your expenses are rising at 10%, then a tame CPI or PPI is completely irrelevant.
It's inevitable that even the reported numbers will start to creep higher and this should occur in the very near future. The most objective measure of inflation expectations is the GOLD market, which continues to surge to new all-time highs. If that market screams INFLATION, why isn't Uncle Sam listening?
Marko's Take
Some websites we like and urge you to check out are the following: LeMetropole Cafe (http://www.lemetropolecafe.com/) and Shadow Stats (http://www.shadowstats.com/). Both of these sites, like us, only deliver the unvarnished truth - a rare commodity these days.
Showing posts with label Producer Price Index. Show all posts
Showing posts with label Producer Price Index. Show all posts
Tuesday, May 18, 2010
Saturday, April 24, 2010
Producer Prices Producing Signs Of Inflation
The recently released Producer Price Index (PPI) is beginning to show signs of the inevitable wave of hyper-inflation (http://www.bls.gov/news.release/archives/ppi_04222010.pdf).
The PPI for Finished Goods rose 0.7% from February to March, seasonally-adjusted, following a 0.6% decline in February and a 1.4% increase in January.
In March, more than 70% of the increase in the finished goods index can be attributed to a 2.4% jump in prices for consumer foods. The index for finished energy goods advanced 0.7% and prices for finished goods, other than foods and energy, edged up 0.1%.
Excluding seasonal adjustments, the March PPI rose by 1.1%. On a year-to-year basis, March’s annual PPI rose to 6.0%, up from the 4.4% annual inflation reported for February. The March 2010 annual inflation rate was the highest since the 8.8% annual rate in September 2008, when the systemic solvency/financial crisis reached its peak.
Rising prices of commodities is the driver. Of 15 major commodity price indexes, 13 were higher month-to-month (data are reported not seasonally adjusted). The PPI All Commodities Price Index was up year-to-year in March 2010 by 9.0%, versus a 6.9% annual gain in February and was at its highest growth rate since September 2008. Similarly, the March Purchasing Managers survey had shown its highest "Prices-Paid" index readings since August 2008 for manufacturing and since September 2008 for non-manufacturing industries.
Obviously, the inflation-creep is bullish for Gold and Silver. Recent auctions for Treasuries have become more problematic as the result of poor yields. The Federal Reserve has no choice but to keep rates low as long as possible, especially as the non-existent "economic recovery" sputters. This leaves no choice but for the Washington cabal to monetize our debt and fan the flames of inflation.
As we've mentioned in prior blogs, inflation has a lag effect and, once started, is incredibly difficult to thwart. The only solution is to endure a sustained period of economic hardship. Paul Volcker, former head of the Federal Reserve, resorted to raising interest rates to nearly 20%. This was followed by a severe recession until the Reagan tax cuts provided enough economic stimulus to set the stage for a prolonged period of sustained growth.
Marko's Take
Please visit us on YouTube. Our latest video blog on the Legality of the Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg). In addition, if you have any interest in 3D applications for your cell phone, visit our new website at (http://www.e3dlabs.com/).
The PPI for Finished Goods rose 0.7% from February to March, seasonally-adjusted, following a 0.6% decline in February and a 1.4% increase in January.
In March, more than 70% of the increase in the finished goods index can be attributed to a 2.4% jump in prices for consumer foods. The index for finished energy goods advanced 0.7% and prices for finished goods, other than foods and energy, edged up 0.1%.
Excluding seasonal adjustments, the March PPI rose by 1.1%. On a year-to-year basis, March’s annual PPI rose to 6.0%, up from the 4.4% annual inflation reported for February. The March 2010 annual inflation rate was the highest since the 8.8% annual rate in September 2008, when the systemic solvency/financial crisis reached its peak.
Rising prices of commodities is the driver. Of 15 major commodity price indexes, 13 were higher month-to-month (data are reported not seasonally adjusted). The PPI All Commodities Price Index was up year-to-year in March 2010 by 9.0%, versus a 6.9% annual gain in February and was at its highest growth rate since September 2008. Similarly, the March Purchasing Managers survey had shown its highest "Prices-Paid" index readings since August 2008 for manufacturing and since September 2008 for non-manufacturing industries.
Obviously, the inflation-creep is bullish for Gold and Silver. Recent auctions for Treasuries have become more problematic as the result of poor yields. The Federal Reserve has no choice but to keep rates low as long as possible, especially as the non-existent "economic recovery" sputters. This leaves no choice but for the Washington cabal to monetize our debt and fan the flames of inflation.
As we've mentioned in prior blogs, inflation has a lag effect and, once started, is incredibly difficult to thwart. The only solution is to endure a sustained period of economic hardship. Paul Volcker, former head of the Federal Reserve, resorted to raising interest rates to nearly 20%. This was followed by a severe recession until the Reagan tax cuts provided enough economic stimulus to set the stage for a prolonged period of sustained growth.
Marko's Take
Please visit us on YouTube. Our latest video blog on the Legality of the Personal Income Tax can be accessed by clicking here (http://www.youtube.com/markostaketv#p/u/0/1TInKnCIikg). In addition, if you have any interest in 3D applications for your cell phone, visit our new website at (http://www.e3dlabs.com/).
Friday, February 19, 2010
Fed Raises Rates... Or Did They?
In a move that had already been well telegraphed, the Federal Reserve (FED) raised the discount rate from .50% to .75%. Is this the beginning of a new tightening cycle? NO! What readers of "Marko's Take" already know is that any major upward move in rates is not in the cards for 2010.
Reason 1 is the size of the National Debt, which had its ceiling recently raised by Congress to in excess of $14 Trillion! A 1% increase in rates translates into an additonal $140 billion per year increase in our budget deficit! Reason 2 is that the economy is NOT in a recovery, but slipping into the second dip of this "Double Dip Hyper-Inflationary Depression". Any material increase in rates is just not going to happen.
Furthermore, for any "tightening" to occur, the FED must raise rates FASTER than the increase in inflation. The "real" interest rate is defined as the prevailing interest rate MINUS the ongoing inflation rate. Historically, real rates have been slightly positive - about 2%. However, at the present, real rates are NEGATIVE and given the latest release in the Producer Price Index (PPI), a meager .25% increase in rates still keeps the FED way behind the curve.
Negative real rates were a FED policy blunder in the 1970's. The result was Stagflation and a mania in Gold. Fast forward to the 2010's and HISTORY WILL REPEAT!
The FED's move may also have been a token measure to appease China, which has been vocal in its displeasure with U.S. monetary policy and the debasement of the dollar.
Foreign owners of US government debt reduced their holdings by the largest monthly amount ever in December, with China offloading so many Treasury securities that it is no longer the largest foreign holder! Total foreign holdings of treasury securities plunged by $53 billion in December. China led the sell-off, reducing its holdings by $34 billion, while Japan increased its holdings by $11 billion to become the new largest foreign holder of Treasuries.
China has increased their holdings of U.S. Treasuries eight-fold over the past decade, so this latest dumping is relatively small in the grand scheme of things. It is newsworthy only in the fact that China is no longer the largest holder of Treasuries and this could be the beginning of a much larger trend to divest of U.S. debt.
The discount-rate move didn't affect the FED's main policy tool, the federal-funds rate, a FED-influenced rate that banks charge each other on overnight loans. That benchmark rate filters through to other market rates. The FED on Thursday reiterated the fed funds rate will remain near zero for an "extended period," which means at least a few more months.
So, while the FED has taken this rather minor move, the big picture remains unchanged. The FED is far more concerned about NOT derailing the incipient "recovery" it maintains is taking place. What recovery?
Love the FED? Hate the FED? TAKE ME ON!
Marko's Take
Please visit our new YouTube channel at http://youtube.com/markostaketv. We will have a schedule of upcoming episodes posted shortly.
Reason 1 is the size of the National Debt, which had its ceiling recently raised by Congress to in excess of $14 Trillion! A 1% increase in rates translates into an additonal $140 billion per year increase in our budget deficit! Reason 2 is that the economy is NOT in a recovery, but slipping into the second dip of this "Double Dip Hyper-Inflationary Depression". Any material increase in rates is just not going to happen.
Furthermore, for any "tightening" to occur, the FED must raise rates FASTER than the increase in inflation. The "real" interest rate is defined as the prevailing interest rate MINUS the ongoing inflation rate. Historically, real rates have been slightly positive - about 2%. However, at the present, real rates are NEGATIVE and given the latest release in the Producer Price Index (PPI), a meager .25% increase in rates still keeps the FED way behind the curve.
Negative real rates were a FED policy blunder in the 1970's. The result was Stagflation and a mania in Gold. Fast forward to the 2010's and HISTORY WILL REPEAT!
The FED's move may also have been a token measure to appease China, which has been vocal in its displeasure with U.S. monetary policy and the debasement of the dollar.
Foreign owners of US government debt reduced their holdings by the largest monthly amount ever in December, with China offloading so many Treasury securities that it is no longer the largest foreign holder! Total foreign holdings of treasury securities plunged by $53 billion in December. China led the sell-off, reducing its holdings by $34 billion, while Japan increased its holdings by $11 billion to become the new largest foreign holder of Treasuries.
China has increased their holdings of U.S. Treasuries eight-fold over the past decade, so this latest dumping is relatively small in the grand scheme of things. It is newsworthy only in the fact that China is no longer the largest holder of Treasuries and this could be the beginning of a much larger trend to divest of U.S. debt.
The discount-rate move didn't affect the FED's main policy tool, the federal-funds rate, a FED-influenced rate that banks charge each other on overnight loans. That benchmark rate filters through to other market rates. The FED on Thursday reiterated the fed funds rate will remain near zero for an "extended period," which means at least a few more months.
So, while the FED has taken this rather minor move, the big picture remains unchanged. The FED is far more concerned about NOT derailing the incipient "recovery" it maintains is taking place. What recovery?
Love the FED? Hate the FED? TAKE ME ON!
Marko's Take
Please visit our new YouTube channel at http://youtube.com/markostaketv. We will have a schedule of upcoming episodes posted shortly.
Thursday, February 18, 2010
Is Obama's Stimulus Plan Working?
According to the most modest man on Earth, YES! According to a recent Wall St. Journal Poll, nearly 60% of the respondents gave our President's handling of the stimulus program a grade of F. Marko's Take agrees.
Since Mr. Humble doesn't read Marko's Take, let's let him enjoy his world of fanstasy. Since we live in the real world, let's take a hard look at the facts.
According to a Wall Street Journal article, the Obama administration's economic-stimulus program has delivered about a third of its total $787 billion budget during its first year, much of that to maintain social services and government jobs and to provide tax cuts for workers. Now, the pace and direction of stimulus spending are about to change http://online.wsj.com/article/SB10001424052748704804204575069772167897834.html?mod=djemTAR_h).
Infrastructure spending is set to step up in the second year of the stimulus program, which should mean more money flowing to private-sector employers. Still, economists say that won't likely have a big effect on the unemployment rate, which most say ought to continue a slow decline as the broader economy recovers.
Most of the spending, thus far, has gone to enhance government, which we KNOW is a GREAT way to
stimulate the economy (sarcasm intentional).
Proponents of the stimulus program focused attention on infrastructure projects during the fight to win approval for it last year. But, the bulk of the money proposed for projects like new rail lines and water projects — about $180 billion in all — is likely to be spent this year at the earliest.
During year 1 of the stimulus, only about $20 billion was handed out for infrastructure projects. Of the $179 billion in stimulus funds paid out last year, $112 billion has gone out in the form of large checks to state governments to plug holes in school, Medicaid and unemployment-benefits budgets, or to increase funding for established programs, such as food stamps, according to a Wall Street Journal analysis.
But surely we must be seeing some major economic improvement? NOT! Economic data released today continues to verify that things are growing worse. The Producer Price Index (PPI) came in at a whopping 1.4%. Thank God, the Fed isn't too concerned (sarcasm intentional).
Fed officials expect the widely watched consumer price inflation index to stay between 1.3% and 1.6% this year, minutes of their latest meeting at the end of January showed Wednesday. Core inflation is seen at an even lower 1.0% to 1.5% range by the central bank. And we know how good their track record is (sarcasm intentional)!
We also have more "good news" on the employment front. Initial claims for jobless benefits rose by 31,000 to 473,000 in the week ended Feb. 13, according to the Labor Department's weekly report Thursday. The previous week's level was revised upward to 442,000 from 440,000. Economists surveyed by Dow Jones Newswires expected initial claims to increase only by 5,000.
Still think the Stimulus Plan is working? If so, by all means, TAKE ME ON!
Marko's Take
Please stop by our new You Tube site, which will be adding new episodes weekly: http://www.youtube.com/markostaketv
Since Mr. Humble doesn't read Marko's Take, let's let him enjoy his world of fanstasy. Since we live in the real world, let's take a hard look at the facts.
According to a Wall Street Journal article, the Obama administration's economic-stimulus program has delivered about a third of its total $787 billion budget during its first year, much of that to maintain social services and government jobs and to provide tax cuts for workers. Now, the pace and direction of stimulus spending are about to change http://online.wsj.com/article/SB10001424052748704804204575069772167897834.html?mod=djemTAR_h).
Infrastructure spending is set to step up in the second year of the stimulus program, which should mean more money flowing to private-sector employers. Still, economists say that won't likely have a big effect on the unemployment rate, which most say ought to continue a slow decline as the broader economy recovers.
Most of the spending, thus far, has gone to enhance government, which we KNOW is a GREAT way to
stimulate the economy (sarcasm intentional).
Proponents of the stimulus program focused attention on infrastructure projects during the fight to win approval for it last year. But, the bulk of the money proposed for projects like new rail lines and water projects — about $180 billion in all — is likely to be spent this year at the earliest.
During year 1 of the stimulus, only about $20 billion was handed out for infrastructure projects. Of the $179 billion in stimulus funds paid out last year, $112 billion has gone out in the form of large checks to state governments to plug holes in school, Medicaid and unemployment-benefits budgets, or to increase funding for established programs, such as food stamps, according to a Wall Street Journal analysis.
But surely we must be seeing some major economic improvement? NOT! Economic data released today continues to verify that things are growing worse. The Producer Price Index (PPI) came in at a whopping 1.4%. Thank God, the Fed isn't too concerned (sarcasm intentional).
Fed officials expect the widely watched consumer price inflation index to stay between 1.3% and 1.6% this year, minutes of their latest meeting at the end of January showed Wednesday. Core inflation is seen at an even lower 1.0% to 1.5% range by the central bank. And we know how good their track record is (sarcasm intentional)!
We also have more "good news" on the employment front. Initial claims for jobless benefits rose by 31,000 to 473,000 in the week ended Feb. 13, according to the Labor Department's weekly report Thursday. The previous week's level was revised upward to 442,000 from 440,000. Economists surveyed by Dow Jones Newswires expected initial claims to increase only by 5,000.
Still think the Stimulus Plan is working? If so, by all means, TAKE ME ON!
Marko's Take
Please stop by our new You Tube site, which will be adding new episodes weekly: http://www.youtube.com/markostaketv
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