macroblog

« Same Old Story | Main | Data Independence »

July 19, 2006

The Chairman Soothes, The Data Don't

Chairman Bernanke did his duty today, and completed his semi-annual discussion, on behalf of the Federal Open Market Committee, with the Senate Committee on Banking, Housing, and Urban Affairs.  The market reviews were good.  From the AP, via ABC News:

Wall Street shot higher Wednesday after Federal Reserve Chairman Ben Bernanke soothed investors with his view that economic growth seems to be moderating and inflation remains contained. The Dow Jones industrial average gained more than 220 points, while Treasury bonds recovered from early losses to close sharply higher.

Those early losses were due to the now-forgotten news of the day: The CPI report for June was not good, not good at all.  Here's the short version:

   

Table_1_1

Table_2_1

   

Find any comfort there?  Me neither.  But wait.  It gets worse.  Here is the distribution of price changes (weighted, as usual, by expenditure shares):

   

Distribution_2

   

So, just over 60 percent of weighted price changes have been rising at a annual pace in excess of 3 percent. And it ain't just energy:

   

Nonenergy_distribution_june

   

Rent and owner's equivalent rent are certainly implicated...

   

Oer_1

   

... but together these components only represent about 30 percent of the CPI market basket. 

These inflationary impulses may very well be temporary -- I'm still guessing they are -- but they are very definitely broad based. 

UPDATE: Mr. Naybob agrees that the price pressures are broad-based, and implicates energy-price pass-through.  But Brad DeLong might disagree with my assessment of the report, advertising the news as "A Slightly, Slightly Unfavorable CPI Report." But The Skeptical Speculator says the news was bad (and does its standard exemplary job of putting things in the context of the broader global context).  Mark Thoma notes that the inflation reports are not helping the case for a pause in FOMC rate hikes.  The Capital Spectator thinks the answer to whether yesterday's market optimism was warranted "awaits in the enxt CPI report."

On Mr. Bernanke's testimomy, Jim Hamilton views the comments as more optimistic than he expected, and more optimistic than he thinks warranted.  Calculated Risk also expresses some skepticism about the Chairman's characterization of the country's economic health (here and here). Toni Straka was disappointed that there was no discussion of the nation's fiscal situation. Stock Trading Update advises that the Bernanke bounce is likely to be short lived.

July 19, 2006 in Data Releases, Federal Reserve and Monetary Policy, Inflation | Permalink

TrackBack

TrackBack URL for this entry:
http://www.typepad.com/services/trackback/6a00d8341c834f53ef00d83427c43853ef

Listed below are links to blogs that reference The Chairman Soothes, The Data Don't:

» Reading the yield curve from Econbrowser
What are the implications of the current shape of the yield curve? [Read More]

Tracked on Jul 24, 2006 11:36:09 PM

» A pause it shall be from Econbrowser
The last month has been something of a cliffhanger for Fed watchers. But today the market seemed to make up its mind. [Read More]

Tracked on Aug 4, 2006 3:02:29 PM

Comments

Nice post.

I could make it uglier, but I'll wait.

Posted by: Movie Guy | July 19, 2006 at 09:47 PM

I dont think Bernanke was trying to soothe the markets. He just tells it like it is. The markets expect him to provide guidance and he just gives us a lecture in economics.

Posted by: vincentm | July 19, 2006 at 10:04 PM

I still feel that high energy prices have yet to work upstream, and CPI will slowly get larger. May not be huge increases, but may slowly creep up past historical averages.

Posted by: Mcwop | July 20, 2006 at 09:32 AM

The year over year change in the CPI is exactly the same as it was when Nixon imposed price controls in aug. 1971.
But of course we have redefined the CPI down since then so really the inflation rate is higher now.

Posted by: spencer | July 20, 2006 at 09:32 AM

Shouldn't any CPI numbers BEFORE the dramatically large BOSKIN adjustments be adjusted downwards to allow for a more reasonable comparison?

Posted by: bailey | July 20, 2006 at 01:19 PM

Post a comment

Comments are moderated and will not appear until the moderator has approved them.

If you have a TypeKey or TypePad account, please Sign in