Friday, May 16, 2008

Inflation Nation

Inflation Nation
by Mike Larson

Mike Larson

What's it going to take? What will it take to get the Federal Reserve to join the rest of us in Realityland when it comes to inflation? That's the question I keep asking myself day after day ... week after week ... month after month ... as prices continue to spiral higher.

Just get a load of what we learned about import inflation in the month of April:

First, the cost of goods imported from abroad jumped 1.8%. That was bigger than the 1.6% increase that economists were expecting. More importantly, the year-over-year rate of import inflation soared to a whopping 15.4%.

How out of control is that? Look at this chart. You can see that we have NEVER seen import prices increase this much, or at least not since the government began tracking such figures back in 1982:

Import Prices Surge Like Never Before

Second, ex-petroleum import prices were up 1.1% on the month, and up 6.2% from a year earlier. That's the fastest rise since 1988. Even if you strip out all fuels, you get a 1% monthly rise and a 5.8% annual rise.

Third, food and beverage prices climbed 0.4% on the month (12.6% year over year), industrial supply prices rose 3.9% (37.3% year over year), capital goods prices jumped 0.8% (2.1% year over year), and consumer goods prices gained 0.2% (2.8% year over year).

In other words, the news was bad across the board. The cost of goods coming to our shores from Asia, from Europe, and from elsewhere is rising due to the slumping dollar and the general inflationary trend we're seeing worldwide.

The Curious Case of the
Latest CPI Report

Of course, the import price report isn't the only inflation gauge we get each month. The one that's most closely followed is the Consumer Price Index. And the news there was actually better than expected — at first glance.

The overall CPI rose 0.2% in April, down from a gain of 0.3% in March. Meanwhile, the "core" (ex-food and energy) CPI gained only 0.1%. That brings the year-over-year rate in CPI inflation down to 3.9% from 4%, and leaves the core CPI year-over-year gain at 2.3%, down from 2.4%.

But to call this CPI report a little fishy would be the understatement of the century. Did you know that gasoline prices fell 2% in April? Or that airfares dropped 0.5%? It's true — or at least, it is if you buy the numbers the Bureau of Labor Statistics is selling.


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