17 Nov 2009

CNBC: "3.7% Annualized Inflation Rate Is Tame"

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On its main page CNBC linked to this article with the headline “Inflation at Bay as Wholesale Prices Remain Tame.” As with just about every blurb of this nature, I have to ask: What is the cutoff point at which inflation is not at bay? From the article:

U.S. producer prices rose more slowly than expected in October despite a rebound in food and energy costs, according to a government report on Tuesday that pointed to tame inflation pressures.

The Labor Department said the seasonally adjusted index for prices paid at the farm and factory gate rose 0.3 percent following a 0.6 percent drop in September.

So let’s see… If you take 1.003 and raise it to the twelfth* power, you get a 3.7% increase (with rounding). Is everyone comfortable knowing that a 3.7% annual inflation rate is considered tame?

As always, I know I know, you can’t freak out about a single month’s blip. But these news stories are always couched in reaction to the single month’s blip. And as far as the year/year comparison, I’ve been saying all year how nonsensical that is, since prices fell like a stone last year up to December, and have been rising steadily ever since. From Dec 08 through October 09, the Producer Price Index is up 2.6%, and when you adjust it for only being 10 months, that works out to an annualized rate (in 2009) of 3.1%. Not the Weimar Republic, to be sure, but hardly evidence of “tame inflation.”

Here’s what I want to know: In January, when they are reporting the PPI and CPI numbers for December 2009, is everyone going to freak out when all of a sudden the year/year numbers go through the roof? Nah, I’m sure at that point somebody at CNBC or Bloomberg say, “You know, I wonder if the year/year figures have been screwy all this time? Don’t worry folks, inflation is still at bay!”

By the way, in case you are skeptical of my rhetoric: I am not flipping back to my worries of imminent explosions in the CPI. The big spurt in M1 and M2 back in late 2008 have been moderated by the lack of growth starting in about March of 2009.

Even so, I still maintain that the press is constantly pushing this “deflation trap” idea, when the actual numbers (as doctored as they are) illustrate the exact opposite story.

* It took me three or four tries before Blogger liked my spelling of twelfth.

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