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Inflation rises to 5.6 percent, highest in 17 years
Thursday, August 14, 2008
The Labor Department reported inflation is now rising at its fastest pace since 1991 - an annual rate of 5.6 percent - as food and energy prices continue to surge.
Overall prices rose 0.8 percent in July after a gain of 1.1 percent in June marking the fastest three-month rate of price increases since late-2005 when Gulf Coast hurricanes sent energy prices soaring. The price gains from three years ago were quickly reversed as hurricane clean-up proceeded, however, there are fewer temporary factors at work today.
Monthly increases were paced by a 1.7 percent gain in transportation costs including fuel prices that rose 4.1 percent. Household energy rose 3.8 percent in July.
Prices for apparel rose 1.2 percent last month and are now up 0.8 percent from year ago levels. Falling prices for imported clothing have been a key factor in historically low inflation over the last ten years, however, this seems to be reversing now.
Food prices rose 0.9 percent in July and are up 5.8 percent on a year-over-year basis.
The core rate of inflation, excluding food and energy, rose 0.3 percent and registered an annual increase of 2.5 percent. Non core inflation, food and energy only as shown in the chart below, is now up 15.5 percent from year ago levels.
The recent decline in the price of crude oil and other commodities should see energy prices dropping dramatically next month, putting downward pressure on the headline inflation figure, however, rising prices related to energy "pass-through" and the strength of the dollar are not likely to recede as quickly.
6 comments:
And yet those real things that are supposed to be hedges against inflation are getting hammered again. I guess the trade is that the fed HAS to raise rates to combat inflation and that in turn will initiate a selloff in real things.
Stagflation - I remember talking with you about it at Ter way back in 2004. At that time when the seeds of Stagflation were being planted, people did not "get it". I also thought that at some point we would get deflation due to demand destruction. Do you think we are at that point? Most people today think China can pull the world along, but you warned me back then about what could happen after the olympics. Whats your thoughts today about China?
EU
Inflation and deflation have become hopelessly confused because of the way prices are measured (see The complete and utter failure of owners' equivalent rent
The period after the Olympics is critical in China because if there is a steep drop off in demand, much of the "global growth" story will be discredited. They are, however, in a unique position of having trillions of dollars just sitting there, waiting to "stimulate" their economy if need be.
I wish I could have thirty seconds at a news conference to ask the Secretary of the Treasury,
"Please name one monthly or more often bought consumer item, that increased less than six per cent in price during 2007".
After the most recent inflation report the real federal funds interest rate is now -3.6%. That is EXTREMELY inflationary. Look back to the 1970's for that type of number. Dangerous experiment the fed is undertaking here!
http://www.investmenttools.com/thestate/short_rates_minus_inflation_rate.htm
There is no such thing as "core inflation"----I don't know of a single person who doesn't buy food and energy every single month. It's just another lie to make people think inflation isn't as bad as it really is.
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