We are going to review inflation by looking at import prices, producer prices and consumer prices, all with data through April, 2011. We will also examine the purchasing power of the consumer dollar and the “real yield” of several items.
When looking at the following inflation charts, please remember Chairman Bernanke's favorite word regarding inflation:
TRANSITORY - adjective
- not lasting, enduring, permanent, or eternal.
- lasting only a short time; brief; short-lived; temporary.
We certainly hope the Chairman is right.
U.S. Import Price Index (All Commodities & All Imports Excluding Fuels)
The following chart plots the Import Price Index for All imports and All imports excluding fuels. The former has risen 11.1% in the past twelve months while the latter has risen 4.3%.
U.S. Import Price Index (Foods, feeds, & beverages)
The following chart shows the Import Price Index for Foods, feeds and beverages. This index has risen 19.6% in the past twelve months.
Producer Price Index
Finished goods (SA), intermediate goods (SA) and Crude materials (SA)
We are now going to shift our focus to Producer Prices. We start with a chart of the three main categories of the PPI: finished goods, intermediate goods and crude materials. Finished goods is the headline number that the media focuses on each month. Notice that the three measures are advancing at annual rates of 6.63%, 9.40% and 23.53% respectively. We cannot help but wonder if the bond vigilantes are paying attention.
Producer Price Index
Finished goods less food and energy (SA)
Even when looking at the “core rates” of the three main categories, we see numbers that in all cases are above the Fed’s inflation target of 2%.
Producer Price Index
All commodities (NSA)
The following chart is the Producer Price Index – All commodities. We have isolated three distinct cycles since 1913 with a fourth cycle in the making. The first cycle was associated with and after World War I, the second cycle was associated with the aftermath of World War II and the Korean War and the third cycle was associated with the build-up and aftermath of the Vietnam War.
Consumer Price Index
All Items (SA) and All items less food and energy (SA)
Let us now turn our attention to Consumer Prices. We begin with a chart of the Consumer Price Index – All items and the All items less food and energy or “core rate.” We also show a listing of the annual rates of change for the eight major sub categories of CPI.
Consumer Price Index
All items (NSA)
The following chart is the Consumer Price Index – All items (not seasonally adjusted). Again, we have isolated three distinct cycles since 1913 with a fourth unfolding.
Purchasing Power of the Consumer Dollar
The Federal Reserve was created in 1913. The following chart is drawn from the Bureau of Labor Statistics series called the Purchasing Power of the Consumer Dollar with a base of .00 in January 1914. That dollar is worth 4.48 cents in April, 2011.
Real U.S. Treasury Yield Curve
The following chart shows the “real yields” for U.S. Treasury Yield Curve from last Friday, May 13. All maturities out to 10 years are currently negative yields.
The following four charts are monthly chart of “real yields.” Shown are Fed Funds, 3 month U.S. Treasury Bills, the Long-term U.S. Treasury and Moody’s AAA Bonds. The “real yield” of all four are below their historical averages.
Real Monthly Average Federal Funds Rate
Real U.S. Treasury Monthly Average Yields
Real U.S. Treasury Monthly Average Yields
Real Moody's Aaa Monthly Average Yields
