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PeakTrader said...

Quality improvements, low interest rates, and rising incomes also effectively reduce prices.

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PeakTrader said...

Some prices rise and some fall, which result in the following:

Consumer Price Index - January 2011
February 17, 2011
BLS

Over the last 12 months, the all items index increased 1.6 percent before seasonal adjustment.

The index for all items less food and energy has risen 1.0 percent (over the past year).

Briefing.com: Personal Income and Spending
31-Jan-11

Core PCE prices remained weak and showed no growth in December. On a year-over-year basis, core PCE prices are up just 0.7%, which is the lowest on record.

(PCE is comprised of three categories: durables, nondurables, and services).

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morganovich said...

peak-

"Some prices rise and some fall, which result in the following."

no. that is not what they result in at all.

to get that number, you have to adjust prices down for imagined improvements in quality in a one sided and utterly subjective process, then you have to under express all the items that went up in price and over express all those that go down.

the "some go up some go down" idea you are suggesting is how it used to be done.

suing that methodology, inflation is currently well over 8%.

why are you so resistant to actually looking at the methodology the BLS uses? you just keep repeating their results over and over like some sort of mantra, but do not seem the least bit interested in how they got to that number and whether or not it makes sense.

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PeakTrader said...

Morganovich, the GDP Price Deflator and CPI show similar results:

"The implicit GDP price deflator is a measure of the aggregate price level for the economy...reflects up to date expenditure patterns... A fixed market basket measurement would miss this change...In practice, the difference between the deflator and a price index like the Consumer price index (CPI) is often relatively small."

National Income and Product Accounts
Annual 2010
JANUARY 28, 2011
BEA

Real GDP increased 2.9 percent in 2010...Current-dollar GDP increased 3.8 percent in 2010...The price index for gross domestic purchases increased 1.3 percent in 2010.

Also, I may add, quality adjustments in the CPI are reasonable and most likely continue to overstate the true inflation rate, although by less:

Common Misconceptions about the Consumer Price Index
BLS

Critics often incorrectly assume that BLS only adjusts for quality increases, not for decreases, and that hedonic adjustments have a large downward impact on the CPI. On the contrary, BLS has used hedonic models in the CPI shelter and apparel components for roughly two decades, and on average hedonic adjustments usually increase the rate of change of those indexes.

Frequently Asked Questions about Hedonic Quality Adjustment in the CPI
BLS

A fundamental problem for the goods and services in the CPI sample is that their characteristics, not just their prices, change over time as the retailers introduce new versions of items and discontinue the older versions. In many categories of items, this is the primary time when price change occurs. The new version of the item may provide additional benefits or, in some cases, reduced benefits. This change in benefit is quality change.

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PeakTrader said...

The effect of food prices on the U.S. CPI is, to quote Alan Simpson, like "a sparrow's belch in the midst of typhoon."

There are hundreds of major forces pushing and pulling the largest and most diversified economy and consumer market in the world.

US food price inflation lowest since 1992-USDA
August 25, 2010

USDA revised its food price prediction to an increase of 0.5 to 1.5 percent in 2010 from its prior forecast in late July that called for a rise of between 1.5 percent to 2.5 percent.

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morganovich said...

peak-

and then CPI comes in ahead of forecast meaning the real retail sales actually shrunk in january (up .3 nominal vs .4 CPI)

.4% annualizes to 5% CPI and there are signs of more price increases to come.

"The cost of living in the U.S. climbed more than forecast in January, led by higher prices for food and fuel that may be starting to filter through to other goods and services.

The consumer-price index increased 0.4 percent for a second month, exceeding the 0.3 percent median estimate of economists surveyed by Bloomberg News, figures from the Labor Department showed today in Washington"

“We are seeing turn-of-the year price increases,” Stephen Stanley, chief economist at Pierpont Securities LLC in Stamford, Connecticut, said before the report. “Firms are really struggling with this. They want to raise prices and want to feel their way through and get away with it before consumers start to protest.” "

of course, CPI is still trailing well behind other inflation measures, but it look like even that heavily manipulated number is starting to show the inflation that is going on.

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PeakTrader said...

Juandos: "PT then I wonder about the interest on the national debt and what that might possibly do to the inflation rate?"

Depressions normally coincide with deflation.

Jason: "This is a difficult set of data to reconcile."

Perhaps, we may want to avoid how Taco Bell has managed to sell $0.99 tacos over the past 10 years.

However, unless the composition of a cow has changed, when someone eats the low end (no pun intended), someone else eats the high end.

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VangelV said...

Depressions normally coincide with deflation...

You might want to rethink this.

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morganovich said...

"Depressions normally coincide with deflation"..."

tell it to zimbabwe or the weimar republic or the austro-hungarians or the argentines.

that is not nearly as true as you suspect.

in many cases, depressions are created by (or worsen in response to) extremely loose money, often driven by a need to pay external debt and run ruinous social programs.

it is not uncommon to see rampant inflation and dramatic real GDP contraction simultaneously.

Argentina had triple digit inflation and double digit real GDP contraction simultaneously.

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PeakTrader said...

Deflation Wikipedia

"Deflation is correlated with depressions – including the Great Depression...However, historically not all episodes of deflation correspond with periods of poor economic growth."

Robert Lucas (Nobel Prize economist at the University of Chicago):

"The central problem of depression-prevention has been solved, for all practical purposes."

My comment:

The 1970s was a bust phase of a long-wave business cycle, similar to the 1930s.

Accommodative monetary policy prevented Great Depression II in the 1970s.

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morganovich said...

""The central problem of depression-prevention has been solved, for all practical purposes.""

keynes said that same thing in the 20's.

we were in recession for 8+ of the 10 years from 2000-2010 if you use any kind of legitimate inflation gauge.

http://www.shadowstats.com/alternate_data/gross-domestic-product-charts

the BEA GDP delflator is so cooked that is is giving off readings 2/3 lower even than CPI.

consumer debt exploded during that period precisely because real interest rates were negative and people could see it even if the fed could not.

thus, we got a housing bubble and the bust, and are now in very dangerous territory with a return of stagflation that we are mistaking for growth.

idea like long wave business cycles are just Rorschach style nonsense like fibbonaci retracements that mathemeticians see in the data when they stare at it for too long.

you can make anything look like cycles if you have flexible enough parameters.

look, us debt to GDP ratio causes global warming:

http://wattsupwiththat.com/2011/02/16/forget-co2-us-debt-causes-warming/

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morganovich said...

mark-

you are missing that fact that our food imports are up over 13% in price, and that 85% of them are "ready to consume" as opposed to "crude".

http://www.bls.gov/news.release/ximpim.t01.htm

line 4.

foods feeds and beverages:

dec 2009-dec 2010 change:

13.1%

line 5:

Agricultural foods, feeds & beverages, excluding distilled beverages:

dec 2009-dec 2010 change:

13.4%.

then look at the makeup:

http://paul.kedrosky.com/archives/2009/08/us_food_imports.html

this "inputs vs final products" argument gets made frequently, but that facts seem to oppose it.

our janaury export food prices were up 3.2% (46% annualized).

unless our home market is behaving radically differently from our imports and exports (and the food prices of the rest of the world as well) then this "there is no food inflation" argument seems unsupportable.

all the evidence outside of the heavily manipulated BLS data points to high food inflation.

how many other datapoints will it take to convince you that the CPI is not reporting what is going on in the market?

apart from the GDP deflator (whose methodology is even more slanted to ignore inflation and inflate growth), pretty much every other indicator is showing significant and accelerating inflation.

even the 30 day trailing billion price project data from MIT is annualizing at over 9%, and internet prices ought to have lower inflation that the economy as a whole.

producer prices are more volatile than consumer because of forward pricing and the way the 2 are measured. it says nothing about the actual rates of inflation.

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PeakTrader said...

Even if food prices double this year, it won't add much to U.S. inflation.

For example, the food component of a box of cereal in the U.S. is a small proportion of its price.

Also, Americans spend less than 10% of their income on food.

If developing countries pay more for wheat, rice, corn, etc., then they'll have less to spend on beef, poultry, fish, etc., which may result in lower U.S. prices for those items.

Then there are fixed costs, e.g. mortgage and auto payments, which become relatively cheaper when nominal income rises.

After severe recessions, high real growth rates add little to inflation, and we haven't had high real growth.

It's likely in 2011, U.S. real growth will pick-up to 4%, while inflation remains around 2%, or 6% nominal growth.

Even Dr Doom is expecting low U.S. inflation-Nouriel Roubini's 2011 prediction:

•GDP growth in 2011 will most likely support a pace of job creation that will be barely capable of absorbing increases in the labor force and will fail to bring down the unemployment rate significantly.

•Inflation will remain well below the implicit 2% Fed target for core PCE for quite some time. This implies no change in Fed policy.

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morganovich said...

peak-

you are presuming this is unfinished food, not ready to eat, which, as i have shown you in the past is not true. this inflation is mostly ready to eat food.

46% annualized X 10% = 4.6% inflation for the economy as a whole just from food.

you can talk about expectations and models all you want, but this is what is really happening.

inflation was 100% above estimates for imports and exports last month and an order of magnitude higher on food.

the BPP month is annualizing at over 9%, and those are internet prices which ought to have less inflation that the economy as a whole.

real retail sales have been been flat for 2 months with all the nominal gain coming from inflation that annualizes at over 5% (and that's according to the CPI-U, which is likely too low)

the map is not the terrain. models for the year are already looking ridiculously off and it's only 6 weeks in.

wake up and smell the (now much more expensive) coffee...

inflation isn't coming, it's already here.

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PeakTrader said...

Morganovich, you say "January food exports rose in price 3.2%."

U.S. exports don't represent U.S. inflation. They represent U.S. income.

Also, you say "46% annualized X 10% = 4.6% inflation for the economy as a whole just from food."

You may want to try 2% X 10% = 0.2%:

US food price inflation lowest since 1992-USDA
August 25, 2010

USDA revised its food price prediction to an increase of 0.5 to 1.5 percent in 2010 from its prior forecast in late July that called for a rise of between 1.5 percent to 2.5 percent.

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Gene Hayward said...

All/most of these goods have things in common. They are subjected to international competition and are not subjected to heavy government regulation nor subsidized to a large extent. Look at all the items in the CPI that have risen in price dramatically over time and you cannot say the same. Seems kind of obvious to me.

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PeakTrader said...

http://3.bp.blogspot.com/-YyAKRtovnfY/TV31hmjdiAI/AAAAAAAAO-4/piDb7R0Noak/s1600/textbooks.jpg

The chart shows the "textbook bubble" has been accelerating instead of bursting.

The book is not only 888 pages of valuable and accumulated information appropriate for Econ 101, it's presented as a work of art.

It's a luxury good that represents the U.S. higher education system, where even average universities are high quality.

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http://3.bp.blogspot.com/-n4vnNbNKbYw/TV7MsZB4GlI/AAAAAAAAO-8/VWmEtEzTg2k/s1600/service.jpg

http://www.blogger.com/comment.g?blogID=28997633&postID=8084663028207023127

http://3.bp.blogspot.com/-Q_QNU528LNM/TVvl1H0PQ8I/AAAAAAAAO-A/Upq5As_4vw8/s1600/ppi.jpg

http://2.bp.blogspot.com/-JQ1Rv4bOchU/TVn9c7vCI4I/AAAAAAAAO9k/n5uayq1UFvk/s1600/gdp.jpg