No Food Inflation? Take a 2nd Look

One of the great mysteries of the whole easing era — the past five years of unprecedented intervention and activism orchestrated by Fed Chairman Ben Bernanke — is that it hasn't led to rampant inflation...at least not yet.

While economists routinely strip out food and fuel when they look at pricing data to derive what they call a "core" figure, even the all-in figure has been eerily benign lately. The March consumer price index, or CPI, just released this morning, showed a 0.2% drop. But within the data, food prices remained flat, while the prior report showed a 1.6% increase in the food index over the past 12 months.

This "paltry" increase in food prices got Nick Colas, chief market strategist at ConvergEx Group, thinking. What if the items in the government's basket were different than what real consumers actually buy? As Colas explains in the attached video, so-called "shopping cart inflation" is anything but benign. "The things that people most commonly shop for are increasing in price much more quickly than that CPI basket inflation number we're used to seeing," says Colas, singling out the spike in staples such as lettuce (+24%) and apples (+11%) in a recent note to clients.

Part of the problem, he says, is due to the drought last summer. While that might seem like old news at this point, Colas says it will "have a very long shadow" on food prices this year, as the ripple effect from costlier corn and grains makes its way through animal feed and on to meat prices. All in, Colas sees the food component rising 3% to 4% this year, but warns that what people eat will have a big impact on how much they spend. Read more >>

The High Price Of Understated Inflation

Since the process of adjustment began in the early 1980s, the officially-reported CPI-U number has diverged ever further from the underlying figure calculated on the traditional methodology. Fig. 4.2 gives an approximate idea of quite how distorted US inflation data seems to have become over three decades. Instead of the 3.2% number reported for 2011, for example real inflation was probably at least 7%. Worse still, the official numbers probably understate the sharp pick-up in inflation which America has been experiencing. A realistic appreciation of the inflationary threat would be almost certain to have forced very significant changes in monetary policy.

Taken in aggregate, the extent to which the loss of dollar purchasing power has been understated is almost certainly enormous. Between 1985 and 2011, official data shows that the dollar lost 53% of its value, but the decrease in purchasing power might stand at more like 75% on the basis of underlying data stripped of hedonics, substitution and geometric weighting.

The ramifications of understated inflation are huge. First, of course, and since pay deals often relate to reported CPI, wage rises for millions of Americans have been much smaller than they otherwise would have been. Small wonder, then, that millions of Americans feel much poorer than official figures tell them is the case. By the same token, those Americans in receipt of index-related pensions and benefits, too, have seen the real value of their incomes decline as a result of the severe (and cumulative) understatement of inflation. Read more >>

REAL Consumer Price Index up 5.2 percent in 2012

All of the things that go into the CPI are important parts of the consumer experience, but they don't really reflect how people live day to day—most people don't buy refrigerators and cars every day, after all. That's why one group of economists has developed its own real-life index. And by this measure, prices have in recent months been growing far faster than government figures indicate.

The American Institute for Economic Research, a Massachusetts-based firm, produces a monthly Everyday Price Index, which finds that as of September, prices had grown by 5.2 percent over the course of 2012. That's far higher than the 1.9 percent seasonally adjusted increase according to CPI data.

The price index includes basics like food, gasoline, and utilities, but also includes other common expenditures like cable and satellite TV, movie and sporting event tickets, and postage. Meanwhile, it excludes big-ticket purchases like appliances and computers, as well as rent and mortgage payments. Read more >>

The Middle Class Is Worse Off Than You Think

The decline of the middle class has emerged as a key issue in the presidential campaign with both candidates promising policies to restore the economic stability of the middle class.

The conventional view has wages for the middle class, particularly men, stagnating over the past 40 years. But Michael Greenstone, economics professor at MIT and director of The Brookings Institution's Hamilton Project, says the situation is much worse than that.

Greenstone tells The Daily Ticker that after studying the data more carefully he found "that a lot of men are no longer in the workforce or are working part time."

"If you put them back in, the earnings of the guy in the middle have declined 20% over the last four decades," he says. "As a result, the median earnings of men are back to the levels that prevailed in the 1960s."

In the latest jobs report released Friday, the average hourly earnings for men and women rose a penny to $23.58 an hour. That caps a 1.6% gain over the past 12 months, which is not enough to keep up with 2% inflation as measured by the Consumer Price Index. Read more >>

Cost of Living Keeps Rising

Image by xcode via FlickrThe cost of living in the U.S. kept rising in September, led by continued increases in food and energy prices, posing another challenge for Americans struggling with a weak job market.

Rising prices for food, shelter and other necessities led to the first cost-of-living increase in Social Security benefits since 2009. The more than 60 million Americans who receive Social Security will see their checks increase by 3.6%, the government said, but the increase will largely be offset by higher medical-care costs.

Consumer prices last month rose a seasonally adjusted 0.3% from August, the third straight monthly increase, the Labor Department said Wednesday.

Separately, U.S. home building grew in September to the highest level in 17 months. The results, however, were driven by a more than 50% monthly increase in construction of multifamily homes with at least two units, a volatile part of the market. Construction of single-family homes rose by 1.7% from a month earlier.

The weak housing market is a key concern to economic policy makers, and Federal Reserve officials monitor the consumer price data for any signs of inflation. That's because higher prices eat into the purchasing power of many Americans already struggling to find a job or to get a pay increase. Fed officials need to calibrate their interest-rate policy so that it boosts the economy and jobs without spurring too much inflation. More...

Food inflation is far worse in grocery stores than restaurants

Image by Getty Images via @daylifeAccording to the latest government figures, the consumer price index for food at home increased by 60 basis points year-over-year to 6% versus the 10 basis point gain in food away from home CPI inflation to 2.7%.

Food inflation is now the most important household expense, according to Wal-Mart's (WMT) commentary during its earnings call last month. Food prices, according to the Bureau of Labor Statistics, continue to accelerate higher. The charts below illustrate food cost trends and food cost trends versus core inflation. It's worth noting that the spread between food at home inflation and core inflation widened month-over-month while the spread between food away from home and core inflation narrowed. More...

Food prices rise sharply - and there's more to come

For the first time since 2008, inflation is hitting consumers in the stomach.

Grocery prices grew by more than 1 1/2 times the overall rate of inflation this year, outpaced only by costs of transportation and medical care, according to numbers released Wednesday by the U.S. Bureau of Labor Statistics.

Economists predict that this is only the beginning. Fueled by the higher costs of wheat, sugar, corn, soybeans and energy, shoppers could see as much as a 4 percent increase at the supermarket checkout next year.

"I noticed just this month that my grocery bill for the same old stuff - cereal, eggs, milk, orange juice, peanut butter, bread - spiked $25," said Sue Perry, deputy editor of ShopSmart magazine, a nonprofit publication from Consumer Reports. "It was a bit of sticker shock." More...

Inflation Is Already Here

Image by Getty Images via @daylifeIan Cooper
This is just too stupid not to comment on.

Federal Reserve Chairman Ben Bernanke just said: "We're not in the business of trying to create inflation, our purpose is to provide additional stimulus to help the economy recover and to avoid potentially additional disinflation, which I think we all agree could also be worrisome."

How does this guy still have a job?

First, the Fed is in the business of creating inflation. It's their goal. Their target is always set around +2% every year.

Second, Bernanke is trying to convince us that inflation is well below the 2% target.

Third, he's not even looking at the right numbers. The only way inflation isn't a worry is if he's looking at core CPI numbers, which exclude volatile food and energy.

Something big is happening in the markets. And yet "official" numbers are telling us everything is fine — leading me to believe there's a huge disconnect between CPI and the world the rest of us live in.

Honestly, Bernanke's insanity would be laughable, were it not so economically destructive. It's absurd that he would argue inflation is under control when the cost of everything has spiked...

Inflation has arrived

And for Ben to not see that, I'm worried. It all reminds me of 2007, when he saw "little chance" of the subprime housing mortgage problem spreading to the general economy...

Just take a look at these commodity prices and tell me — with a straight face — that inflation isn't here:

* Gold is at all-time highs above $1,400.
* Silver is at a 30-year high.
* Cotton is running, with prices being passed on to consumers.
* Sugar is at 30-year highs, and we're likely to see food prices increase because of it.
* Oil is running well above $85.
* Grain markets are exploding: December wheat, last checked, was just under $7.30. Corn was at $5.88 per bushel, and soybeans are rocketing well above $12.80 a bushel.

In the last year alone, palladium and cotton have doubled. Corn, silver, and wheat are up close to 60%.

In the months since Bernanke told us QE1 would not jeopardize the stability of prices, the price of oats is up 40%.

Orange juice is up 45%... rice is up 50%... coffee is up 60%... copper is up 70% More...

BS from the BLS: Things are a Lot Worse than They are Telling Us

Dave Lindorff

Many Americans simply assume that the government and politicians lie when they are talking about things like cutting taxes, or eliminating waste. But somehow, we tend to believe official government reports about things like economic “growth” or unemployment rates, or even cost-of-living increases.

The truth, sadly, is that the government is lying about these things too.

Take jobs and unemployment. Right after the election, the Obama administration’s Bureau of Labor Statistics proudly trumpeted that the economy had added 151,000 new jobs in October. President Obama, about to head off to India, land, where many American jobs have moved for good, made it sound like maybe the American economy had finally turned a corner. The news led to a jump in the stock market and everyone breathed a sigh of relief, because finally, we had a number that was greater than the 100,000 new jobs that we have been repeatedly told are needed “just to keep pace with the new workers who join the labor force every month.”

Only the number is a fraud. It turns out that this job number is a fictional construct created by BLS statisticians who are using outdated estimates for the number of new small businesses supposedly created every month, and also outdated estimates for the number of small businesses that go bankrupt every month. The reality is that in this deep recession, few new businesses are being started. No surprise there. It takes capital to start a business, and banks aren’t lending these days, especially to risky new start-ups. The reality too is that existing small businesses are folding at a high rate. The pace of bankruptcies of small companies is down from the record 2009 level, but is still extremely high by historical standards.

The real story on employment is told by the BLS’s household survey, which is taken every month and looks at 60,000 randomly selected households. That survey shows that far from the US economy adding jobs, 330,000 jobs were lost in October.

Lying about unemployment has been going on for a long time. It started to get bad back in 1981, when the new Reagan White House got the BLS to change the methodology for calculating the figure. If we used the earlier methodology from 1980 to calculate today’s unemployment rate, which would mean including all those who have taken part-time jobs while looking for full-time work, and those who have given up trying to look because no jobs are available (those currently considered to be “out of the labor force), unemployment today would be 22.5%! That’s more than double the official 9.6% rate.

But it gets worse.

With very little real economic good news to talk about, the government and the Federal Reserve have liked to cite the stock market, which has now returned to pre-economic crisis levels. That should make us feel good, right?

Except that unmentioned is that insiders--the executives of America’s companies, who have to report any trading in their companies’ stock to the Securities & Exchange Commission -- have been selling their holdings at a record pace this year, and especially in the last few months. Bloomberg reports that in October, insiders sold an all-time record of $662 million in shares of their own companies, while buying only $1.6 million of stocks in their companies. That’s a sell:buy ratio of 423:1

Among the largest companies, executives were unloading their company shares at a ratio of 3177:1.

You have to ask: what do these insiders know about the future direction of their businesses, and of our economy, that we don’t know? My guess is they are all dutifully telling analysts and investors that things are just great, but you’ve gotta wonder: Why are they all getting out now?

Today’s Wall Street Journal notes that after pulling their money out of equities, and staying on the sidelines for over two years, small investors are finally starting to invest in the stock market again. The article’s headline, though, is: “‘Dumb Money’ Tests Bullish View of Stocks.” The article goes on to state that with what Wall Street experts mockingly refer to as the “dumb money” coming into the market, it “argues for caution.” The small investor, the article notes, is a “lagging indicator, reacting to past performance rather than predicting future gains.”

The other thing that they don’t talk about is that some 70 percent of the trading on Wall Street these days is now automated trading, with big investment banks like JP MorganChase and Goldman Sachs using big mainframe computers to buy and sell stocks, holding them literally for seconds or less. Take a look some time at a day’s trading graph. You will see almost every day a straight vertical line as millions of shares are bought or sold simultaneously at the opening of markets at 9:30 am Eastern Time, followed almost always by a reversal of direction as those whose computers made a collective, instant buy or sell decision take their profits and run. This is a new phenomenon, and hardly one that offers any predictive insights, or that bodes well for those who see the markets as an “efficient” way to allocate capital.

Moving to the cost of getting by, the Consumer Price Index, of CPI, has also been fatally tampered with because so many things are linked to it that end up costing companies or governments money. When the CPI goes up, workers naturally want their pay to go up accordingly, so their families can stay afloat. Social Security checks to the elderly and disabled, and to widows and orphaned children, are also raised when the CPI increases. Not surprisingly, back in the early 1980s, the Reagan administration, acting on the advice of a “blue-ribbon commission” on Social Security “reform” headed by future Federal Reserve Chairman and Ayn Rand accolyte Alan Greenspan, changed the way the CPI is calculated, making it much less reflective of reality--and much slower to rise. If you listen to the reports each month, you’ll often hear it noted that the figure doesn’t include energy costs, housing costs, or food costs, which the reporters blithely explain are “volatile”. Well yeah, but they are also a huge part of our all to real cost of living. More...

A Quick Glance At Real World Inflation

The Casey Report provides a useful glance at the real inflation currently ravaging items that are actually purchased by Americans, not those captured by the Fed's BLS statistics: "On average, our basic food costs have increased by an incredible 48% over the last year (measured by wheat, corn, oats, and canola prices). From the price at the pump to heating your stove, energy costs are up 23% on average (heating oil, gasoline, natural gas). A little protein at dinner is now 39% higher (beef and pork), and your morning cup of coffee with a little sugar has risen by 36% since last October." Of course, the ongoing deflation in items purchases requiring leverage will continue to skew the CPI so far south to make all those who bought 5 Year TIPS yesterday at negative yields end up losing money on the transaction. More...

Highest Consumer Price Increase in a Year

A busy month for car dealerships lifted retail sales for the first time in three months while more expensive food and gas boosted consumer prices by the most in nearly a year.

Retail sales rose 0.4 percent last month, buoyed by auto and gasoline station purchases. Most retailers reported declines for the month. Excluding autos, sales climbed 0.2 percent, the Commerce Department said Friday.

Consumer prices rose 0.3 percent in July, the Labor Department said. That's the largest increase since last August to the Consumer Price Index, the government's most closely watched inflation measure. Energy prices jumped for the first time in five months.

Excluding volatile food and energy prices, the so-called "core" index increased 0.1 percent in July. The cost of housing, clothes, and used cars and trucks all rose. Over the past year, consumer prices rose 1.2 percent. That's up slightly from last month's 1.1 percent pace but still a mild increase.

Broad declines in retail sales have economists concerned that spending will slow further in the second half of this year. Households are saving more and spending less as they struggle with high unemployment and lackluster job growth. More...

Consumer prices up 2.3% from last year

money.cnn.com
Consumer prices in March rose at a faster pace on an annual basis amid higher utility costs, the government reported Wednesday.

The Consumer Price Index, the government's key measure of inflation, rose 2.3% over the past 12 months, driven by a 41% climb in gasoline costs during the period. In February, prices climbed 2.1% from the previous year.

The core CPI, which economists eye closely because it strips out volatile food and energy prices, was up 1.1% from a year earlier. In February, it inched 1.3% higher year over year.

March: Overall prices inched up 0.1% in the month, as rising costs for electricity were offset by declines in gasoline prices. The increase was in line with the 0.1% gain projected by economists. Prices did not budge in February.

Core CPI for the month of March was unchanged, compared to a 0.1% increase in February. Economists had forecast a 0.1% bump up.

"The rate of inflation was very low this month and still somewhat below the historical average," said Andres Carbacho-Burgos, an economist for Moody's Economy.com.

Historically, CPI stood between an annual rate of 2.4% to 2.5% and core CPI ran from 1.7% to 1.8% annually, he added.

The run-up in March CPI was driven in part by a 2.1% increase in electricity costs, which was offset slightly by a dip in home gas prices. Overall food prices edged up 0.2% during the month.

According to Carbacho-Burgos, the "abnormal" run-up in electricity prices could be related to "some unseasonable variation" in the price of coal, a key component in electricity creation, due to February's volatile weather.

Prices for new and used cars and trucks, airline fares and medical care costs were higher, with medical costs rising for the third straight month. Conversely, the costs for housing and clothing fell. more...

US Census Bureau: 40 Million Live in Poverty

Image by Getty Images via Daylife

According to a Thursday US Census Bureau report, nearly 40 million people lived in poverty in the United States last year as the recession forced the first significant rise in the US poverty rate in five years. The official poverty rate in 2008 was 13.2 percent, up from 12.5 percent in 2007, according to the Census Bureau's annual "Income, Poverty, and Health Insurance Coverage
in the United States" report.

The rise marked the first time since 2004, when the poverty rate climbed from 12.5 percent to 12.7 percent, that the percentage measure of US poor rose significantly, said David Johnson, head of the Housing and Household Economic Statistics Division at the Census Bureau.

From the report:

The U.S. Census Bureau announced today that real median household income in the United States fell 3.6 percent between 2007 and 2008, from $52,163 to $50,303. This breaks a string of three years of annual income increases and coincides with the recession that started in December 2007.

The nation’s official poverty rate in 2008 was 13.2 percent, up from 12.5 percent in 2007. There were 39.8 million people in poverty in 2008, up from 37.3 million in 2007.

Meanwhile, the number of people without health insurance coverage rose from 45.7 million in 2007 to 46.3 million in 2008, while the percentage remained unchanged at 15.4 percent.

These findings are contained in the report Income, Poverty, and Health Insurance Coverage in the United States: 2008. The following results for the nation were compiled from information collected in the 2009 Current Population Survey (CPS) Annual Social and Economic Supplement (ASEC):

Income

Race and Hispanic Origin (Race data refer to people reporting a single race only. Hispanics can be of any race.)

• Between 2007 and 2008, the real median income of non-Hispanic white households declined 2.6 percent (to $55,530); for blacks, it declined 2.8 percent (to $34,218); for Asians, it declined 4.4 percent (to $65,637); and for Hispanics, it declined 5.6 percent (to $37,913). Except for the difference between the declines for non-Hispanic white and Hispanic households, all other differences between the declines were not statistically significant.

Regions

• Between 2007 and 2008, real median household income declined in the South by 4.9 percent (to $45,590), declined in the Midwest by 4.0 percent (to $50,112) and declined in the West by 2.0 percent (to $55,085). Income in the Northeast was statistically unchanged ($54,346). The apparent differences in the declines in median household income between the South and Midwest, and the Midwest and West were not statistically significant. The apparent difference between the median household incomes for the West and Northeast was not statistically significant.

Poverty

Overview

• The increase in the poverty rate between 2007 and 2008 was the first statistically significant annual increase since 2004. The 2008 poverty rate (13.2 percent) was the highest since 1997.
• In 2008, the family poverty rate and the number of families in poverty were 10.3 percent and 8.1 million, respectively, up from 9.8 percent and 7.6 million in 2007.
• For married-couple families, both the poverty rate and the number in poverty increased — 5.5 percent (3.3 million) in 2008, up from 4.9 percent (2.8 million) in 2007. Both measures, however, showed no statistical change in 2008 for female-householder-with-no-husband-present families (28.7 percent and 4.2 million) and for male-householder-no wife-present families (13.8 percent and 723,000).

Thresholds

• As defined by the Office of Management and Budget and updated for inflation using the Consumer Price Index, the weighted average poverty threshold for a family of four in 2008 was $22,025; for a family of three, $17,163; for a family of two, $14,051; and for unrelated individuals, $10,991.

Race and Hispanic Origin (Race data refer to people reporting a single race only. Hispanics can be of any race.)

• In 2008, the poverty rate increased for non-Hispanic whites (8.6 percent in 2008, up from 8.2 percent in 2007), Asians (11.8 percent in 2008, up from 10.2 percent in 2007) and Hispanics (23.2 percent in 2008, up from 21.5 percent in 2007). The poverty rate in 2008 was statistically unchanged for blacks (24.7 percent).

Age

• The poverty rate increased for children younger than 18 (19.0 percent in 2008, up from 18.0 percent in 2007) and people 18 to 64 (11.7 percent in 2008, up from 10.9 percent in 2007), while it remained statistically unchanged for people 65 and older (9.7 percent).
• Similar to the patterns observed for the poverty rate in 2008, the number of people in poverty increased for children younger than 18 (14.1 million in 2008, up from 13.3 million in 2007) and people 18 to 64 (22.1 million in 2008, up from 20.4 million in 2007) but remained statistically unchanged for seniors 65 and older (3.7 million).