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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December 15, 2006

Happy Holidays (With A Bit Of Scrooge Thrown In)

Your first present this week was the November retail sales report, suggesting that rumors of the consumer's demise may be greatly exaggerated.  More modest glad tidings came today in the form of a November industrial production report that at least wasn't as bad as expected.  If you feel there was too much boost from the ever-vexing auto industry to make that one a keeper, you surely must have felt like humming a happy tune when the Bureau of Labor Statistics unwrapped the latest on consumer price inflation.  Chris Isadore at CNNMoney.com (or whoever writes the headlines over there) sure did:

Inflation is dead ... for now

The Consumer Price Index, the government's main inflation gauge, was unchanged in November, the Labor Department reported, after falling 0.5 percent in October on falling gasoline prices...

The so-called core CPI, which strips out volatile food and energy prices, also was unchanged after a 0.1 percent gain in October. Economists had forecast that closely watched reading would be up 0.2 percent as well.

"The inflation scare of 2006 is over," wrote Kenneth Beauchemin, U.S. economist for research firm Global Insight. He said with the energy price surge behind us, key inflation measures should be within the Federal Reserve's comfort zone in 2007.

And from Reuters:

"All we wanted from this holiday season was a little more growth and a little less inflation, and Santa looks like he has delivered. This is just a great report," Mark Vitner, an economist at Wachovia Securities in Charlotte, North Carolina.

Well boy, that sounds good. Any discouraging words out there?  Of course.  Read that CNNMoney headline above once again carefully, and you will note the "... for now" part:

Patrick Jackman of the Bureau of Labor Statistics said that the Department of Energy figures on gasoline prices so far in December show that if all other prices stay the same and gasoline stays at the current level, overall CPI would be up 0.3 percent in the next report, due to the rebound in gasoline prices.

Jackman said rents are also likely to remain an inflationary pressure in December and going forward, due to a tight supply of rental properties and a reluctance by many Americans to buy their own homes due to concerns about recent declines in home prices.

But the Labor Department does not factor home prices into CPI. Instead its estimate for housing costs is based on rents, even though nearly two thirds of Americans own their homes.

Indeed, if you look at the underlying distribution of price changes in the components of the CPI, things look as weird as ever:




So, at least some folks warn that the recent very tame price increases may be a big gulp of temporary cheer. From the Financial Times:

Haseeb Ahmed, an economist at JPMorgan, said: “Consecutive tepid readings have markedly changed the trajectory of the core CPI,” adding: “But it is worth noting that the fundamental backdrop for inflation is not favorable.”

What a Scrooge.

UPDATE:  The inflation news did indeed gladden the heart of some in bloggerville:  The Capital Spectator proclaimed "Today's inflation is a gift" (but does ask whether it is "a gift that keeps on giving".)  knzn heralds the arrival of price stability. Kash says that "the inflation rate in the US is clearly falling."  The Skeptical Speculator wonders if Goldilocks is about to sing.

But there were also some Scrooge-like reactions: Dean Baker delves into the details and warns that The Death of Inflation Is Greatly Exaggerated. And Barry Ritholtz takes a gander at the median CPI published by the Cleveland Fed which is showing a lot more underlying inflation than other measures -- though I will remind you that the distribution of component price changes published above makes the interpretation of simple summary statistics particularly suspect.

December 15, 2006 in Data Releases , Inflation | Permalink


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"The inflation scare of 2006 is over." Let the inflation scare of 2007 begin. With even Europe and Japan showing signs of growth, how will the zero excess supply of oil cope with the return of driving season in the U.S. to say nothing of China?

Can medical costs be relied on to remain in the 2% range? Is education suddenly overpriced and ready for discounting? I think one number is too little to proclaim that inflation is dead.

Posted by: Rajesh Raut | December 15, 2006 at 10:44 PM

Nouriel Roubini would tell you at least part of this good news is because China is exporting deflation. Watch the weak dollar and pray the housing bubble -- financed by consumer debt -- doesn't burst.

Posted by: Hasan Jafri | December 16, 2006 at 11:50 PM

All we wanted from this holiday season was a little more growth and a little less inflation, and Santa looks like he has delivered..

Posted by: Juno888 | May 18, 2007 at 02:25 AM

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