11 May 2009

Inflation Update

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I have been watching certain figures fairly closely, inasmuch as I have been telling everybody to hedge himself (that sounds funny but it’s grammatical?) against possibly huge price increases that will manifest themselves by the end of 2009. Since I hate it when gurus make bold statements that technically aren’t falsifiable, in a recent post I said:

If the non-seasonally adjusted CPI rises at less than a 5% annualized rate in 4q 2009, I will admit I have been a fool for my warnings, and that I clearly don’t know what I am talking about. I am going to be extremely surprised if all of the money printing and unbelievable deficit spending don’t start pushing up US prices this year.

The one thing that worries me is that the markets don’t seem to agree; here’s Scott Sumner beating that horse.

Yet here’s something interesting: I’m almost already right! The first quarter annualized growth in the (non-seasonally adjusted) CPI was 4.8%! You got that, folks? Everyone and his brother is warning us about the risks of deflation, and yet we had a (nsa) CPI increase during the first quarter that is more than double the Fed’s ostensible “comfort zone.”

Here (.txt) are the official figures: Dec 2008 CPI was 210.2, March 2009 CPI was 212.7. That’s a 1.19% increase over three months, which means an annualized growth rate of 4.8%. So for my 5% figure in 4q 2009 to come true, I just need a sliver more price inflation in that quarter than what we just had. Check out the M1 figure (in levels) below. I’m feeling saucy. (You can also send the below to people who say, “Don’t freak out about the monetary base increase; that money isn’t getting out into the public.” Oh but it is.)

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