The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.

Authors for macroblog are Dave Altig, John Robertson, and other Atlanta Fed economists and researchers.

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July 14, 2005

Retail Sales Robust, CPI Inflation Fine

The news of the day, from Bloomberg...

U.S. retail sales rose a greater-than- expected 1.7 percent in June, as price cuts at General Motors Corp. fueled spending on automobiles while summer temperatures drove purchases of such goods as barbecue grills, lounge chairs and lightweight clothing.

The increase followed a 0.3 percent decline in May that was smaller than previously reported, the Commerce Department said today in Washington. Sales excluding autos rose 0.7 percent, also more than expected, after no change in May.

... and from the Financial Times:

The US June consumer price index was unchanged from May. The core figure, excluding food and energy prices, rose 0.1 per cent, giving an annual rate of increase of 2 per cent...

Since peaking at 3.5 per cent in April, the headline year-on-year rate of inflation has fallen back to 2.5 per cent as of Thursday’s report.

At Angry Bear, Kash reveals...

Month by month, I'm slowly becoming more convinced that the US's inflation rate is on a distinct, if gradual, downward trajectory.

... but the message from the Cleveland Fed's median CPI is more like things are staying pretty stable:

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (2.1% annualized rate) in June. The median CPI is a measure of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report...

Over the last 12 months, the median CPI rose 2.3%, the CPI 2.5%, and the CPI less food and energy 2.0%.

Percent Change From Previous Month
Jan. Feb. Mar. Apr. May June
CPI 0.1 0.4 0.6 0.5 -0.1 0.0
CPI less food & energy 0.2 0.3 0.4 0.0 0.1 0.1
MEDIAN CPI 0.3 0.2 0.2 0.2 0.3 0.2
Percent Change, Last 12 Months
Jan. Feb. Mar. Apr. May June
CPI 3.0 3.0 3.1 3.5 2.8 2.5
CPI less food & energy 2.3 2.4 2.3 2.2 2.2 2.0
MEDIAN CPI* 2.4 2.4 2.4 2.3 2.4 2.3

Compare that with this report from the Financial Times:

The inflation outlook for the euro zone has deteriorated in the past month, European Central Bank chief economist Otmar Issing said in remarks that dampened market expectations of an ECB interest rate cut...

"The outlook for price developments has got decidedly gloomier since June," Issing told journalists at a dinner on Wednesday, in remarks embargoed for publication on Thursday.

"But it still hasn't altered the chance of getting inflation below 2 percent in 2006. For this year you can't put a figure on it as it depends on the price of oil," he said.

Overall, euro zone inflation for June is estimated at 2.1 percent, above the ECB's 2 percent ceiling, and the ECB sees little chance of it retreating while oil prices remain high.

Issing's comments on inflationary risks drove euro zone government debt yields to 1-1/2 month highs after dealers saw prospects weakening further for an ECB interest rate cut. Already markets this week have scaled back pricing for a cut this year from about 50 percent in late June.

Or this Financial Times report from yesterday:

Consumer price inflation climbed to a seven-year high in June on the back of price rises for fruit and meat, hitting the government's new inflation target for the first time.

The official basket of goods and services, which is used to calculate the consumer price index, was 2 per cent more expensive in June than a year ago, compared with a 1.9 per cent price rise in the year to May.

It was the first time that the annual CPI inflation rate, which was the highest since May 1998, hit the Bank of England's inflation target, since it was switched to a new measure at the beginning of last year.

Maybe it's just the fact that U.S. inflation is, if anything, moving down and European inflation measures are ticking upward, but it is interesting that the level of inflation being heralded as positive in the U.S. is generating anxiety on the other side of the Atlantic.  Anyone think we may be witnessing the downside of inflation targets?

July 14, 2005 in Data Releases , Inflation | Permalink


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The low inflation targets set by the Bank of England and by the ECB are definitely flawed. As PIMCO's Paul McCulley pointed out, inflation itself is cyclical and can swing 100-200 basis points from peak to recessionary trough.

At the top of the business cycle, inflation should be at above-average levels, so that the disinflationary effect of any recession does not result in deflation or a deflationary scare.

A better metric may be to strive for an "average" CPI or a CPI range to allow a more flexible response to cyclical changes.

Posted by: A reader in LA | July 16, 2005 at 01:18 AM

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