EconoMonitor

Spurious Data

Perception vs Reality – Is There Really an Inflation Worry?

This week’s release of CPI and PPI confirmed our worst fears that inflation would persist despite a weak economy. A full 45% of people surveyed by Kathleen Hays’ show, The Hays Advantage, said that stagflation was the most likely economic outcome. Another 40% said inflation was most likely and only 10% thought disinflation would prevail. Another poll by Absolute Return Research (Exhibit 2) suggested that inflation, and not fears over future tax increases are the major drag on confidence. We note that neither TIPs nor the forward market indicate that inflation is a major worry, but that doesn’t mean it isn’t a fear that is impacting consumer behavior.

Exhibit 1:   U.S. CPI Figures (YoY)

Jun-11 Jul-11 Aug-11
CPI 3.43% 3.59% 3.76%
Core CPI 1.64% 1.76% 1.95%
Food 3.72% 4.20% 4.59%
Energy 19.61% 19.02% 18.52%
Housing 1.28% 1.45% 1.62%
Apparel 1.90% 3.03% 4.18%
Medical Care 2.92% 3.20% 3.19%

Sources: BLS/Haver Analytics

Consumers have cut back on gasoline use since prices started rising in the spring of this year.  But this has only moderated prices slightly. If we look at Brent crude oil prices, they have fluctuated between $97/bl and $127/bl over the past 35 weeks.  At these levels, gasoline purchases comprise greater than 12% of retail sales.  We can see from Exhibit 1 that energy prices are still rising in the double digits. August data also reveals that higher cotton prices are being passed on to consumers with apparel prices rising slightly over 100b basis points in August.  Food prices continue to move higher rising 30 basis points to 4.5%.  The combination of these factors pushed up both headline and core CPI.

Exhibit 2:   Which one of the following worries you the most at this time?

Jun ‘10 Jan ‘11 Jul  ‘11
Higher taxes 14% 11% 11%
Drop in income* 14% 12% 14%
Unemployment 15% 15% 13%
A rise in the cost of living
(higher inflation)
28% 36% 39%
Having insufficient savings 22% 18% 16%
None of these 5% 6% 6%
Don’t know 1% 2% 2%

* Lower wages, investment income or benefits
Sources: ASR Consumer Survey

If one looks at the Dallas Fed Trimmed Mean PCE which (profiled in our April 21st edition of The Week Ahead) one can see a lower rate of price increases when one takes into account substitution; it comes in at a mere 1.6% y/y. So why all the worry? We believe the answer lies with the oil price. During the 2001 recession CPI was higher than it is now, the Core CPI was higher than it is now and the Dallas Fed Trimmed Mean PCE was higher than it is now, but oil prices were below $30/bl. At this time gasoline station sales as a percent of total retail sales was below 9%. That 3% makes a significant difference in how people feel about inflation and the level of consumer confidence.  Thus, all the backlash towards the Fed. The magnitude of easier money on the price of oil is up for debate, that easier money has helped push up the oil price is not. A jobs policy that helped get more natural gas running cars on the road or that gets more West Texas crude to refineries would do much to help not just jobs but consumer confidence as well.

Exhibit 3

 

This begs the question what if oil prices level off? No what if they fall, I am not even suggesting we be that optimistic, merely what if they level off? In exhibit 4 we show the Brent oil price with forecasts in a random walk between a price of $109-$120/bl and the corresponding y/y% change in price.  By February of next year we start to see a flattening out in the y/y price change. This will begin to help consumer confidence if it happens but will it be too late?

Exhibit 4:

 

 

 

 

 

 

 

 

 

 

 

 

31 Responses to “Perception vs Reality – Is There Really an Inflation Worry?”

YcvddfOctober 3rd, 2011 at 6:48 am

2011…

Nice post. I was checking constantly this blog and I am impressed! Very useful information specially the last part 🙂 I care for such information a lot. I was looking for this particular info for a long time. Thank you and best of luck….

blokady parkingowe slaskJanuary 26th, 2012 at 10:13 am

I and my pals were reading through the nice procedures located on your web site and so before long I had a terrible suspicion I had not expressed respect to you for those techniques. All the men are already stimulated to study all of them and now have unquestionably been tapping into them. We appreciate you actually being considerably accommodating and also for deciding on certain useful issues most people are really desperate to know about. My honest regret for not expressing appreciation to sooner.

Nichol ValascoJanuary 26th, 2012 at 1:47 pm

For anybody who is interested in enviromentally friendly issues, might possibly surprise for you the crooks to keep in mind that and earn under a holder merely because kind dissolved acquire various liters to important oil to make. day-to-day deal livingsocial discount baltimore washington

Bar StoolJanuary 27th, 2012 at 9:31 am

Nice post. I learn something much more challenging on different blogs everyday. It will always be stimulating to read content from other writers and practice just a little something from their store. I’d prefer to use some with the content on my blog whether you don’t mind. Natually I’ll give you a link on your internet weblog. Thanks for sharing.

foreign exchangeJanuary 27th, 2012 at 11:08 pm

I just couldn’t depart your website prior to suggesting that I actually enjoyed the standard information a person provide for your visitors? Is going to be back often to check up on new posts

praca dla opiekunkiJanuary 28th, 2012 at 9:47 am

I’ve been exploring for a little bit for any high quality articles or blog posts on this kind of area . Exploring in Yahoo I at last stumbled upon this site. Reading this information So i’m happy to convey that I’ve an incredibly good uncanny feeling I discovered just what I needed. I most certainly will make sure to don’t forget this site and give it a glance regularly.

Metode Bisnis Online Memberikan Bukti NyataJanuary 28th, 2012 at 11:57 am

I recognize many people have an interest in this particular subject and that i cant deny Im also one of them. Whenever youll find additional debate in regards to this topic then simply it will be additional appealing and I might want to imagine of precisely what you would write regarding the up coming content.

תכנון משרד לפי פ&#1488January 28th, 2012 at 12:23 pm

שלום לכולם ראשית לציין שהבאת מאמר הכי מעניין , מאוד נהנתי להתבונן בו , הייתי רוצה גם לדבר על אתר של חנות ריהוט משרדי סטטוס מתעסקת בקידום עבודות של ריהוט למשרד שילוב נוח של המשרד המודרני. תוך מתן תמיכה אדיב ומקצוענות ריהוט משרדי סטטוס היא הפירמה המקצועית בארץ ישראל בתחום זה.

Me Too ShoesJanuary 29th, 2012 at 1:25 pm

Thanks for your write-up. Another issue is that being photographer requires not only trouble in catching award-winning photographs and also hardships in establishing the best dslr camera suited to your requirements and most especially issues in maintaining the caliber of your camera. This is certainly very genuine and obvious for those photographers that are straight into capturing the actual nature’s exciting scenes : the mountains, the forests, the actual wild and the seas. Visiting these amazing places unquestionably requires a camera that can surpass the wild’s severe area.

32Red CasinoJanuary 30th, 2012 at 9:45 pm

Hmm is anyone else experiencing problems with the images on this weblog loading? I’m trying to find out if its a problem on my finish or if it’s the weblog. Any feed-back would be greatly appreciated.

filmeFebruary 11th, 2012 at 4:21 am

Hey very cool site!! Man .. Excellent .. Amazing .. I’ll bookmark your web site and take the feeds also…I am happy to find numerous useful information here in the post, we need work out more strategies in this regard, thanks for sharing. . . . . .

7RedFebruary 11th, 2012 at 10:14 pm

I enjoyed reading this a lot… I truly hope to read more of your posts in the future, so I’ve bookmarked your weblog. But I couldn’t just bookmark it, oh no.. When I see quality website’s like this one, I like to share it with others So I’ve created a backlink to your web site (from …

HassanHamayunApril 19th, 2016 at 6:56 am

White colored water rafting together with kayaking are typically famous together with thrilling external activities with regards to friends, people, students together with company day out within Sabah Borneo!four pillars hotels

HassanHamayunApril 19th, 2016 at 6:56 am

Threading the exact Atlantic waters to visit to an island loaded with remarkable closes is a really boat holiday to Duiker Island is concerning! This yacht adventure is undoubtedly among the highest steps while about to lovable Cape Location, South The african continent.geoholiday club

HassanHamayunApril 19th, 2016 at 6:56 am

egas is this great spot to check out since it offers many exciting items to see together with do. Something about Vegas you may not know is usually it’s amongst the most famous hub with regards to Grand Canyon guru tours.taste of holiday

HassanHamayunApril 19th, 2016 at 6:56 am

This Mekong Delta executes a wonderful part in the lives on the villages growing along it’s shores. A visit in this region definitely delivers valuable societal insights for every new traveller. No holiday to Vietnam may perhaps truly be complete without the need of taste.holiday blog

HassanHamayunApril 19th, 2016 at 6:56 am

Vocation alter is usually organic, and this also happens more regularly than you’d imagine. Studies show which the typical professional can modify careers (besides jobs) once or twice through the course of her / his lifetime.video games careers