FXstreet.com

Inflation Observatory

5

0

Core inflation is in line with our baseline scenario

Thu, Jun 18 2009, 08:49 GMT
by BBVA Bancomer Team

BBVA Bancomer


  • Rising energy prices offset falling food prices
  • Core price increases were abundant across most components
  • Core inflation is expected to remain low but positive

Energy prices boosted May’s headline inflation

May’s headline consumer prices rose 0.1% after exhibiting no change in April. After falling for the previous two months, the energy index rose 0.2%. A 3.1% increase in gasoline prices offset the 1.8% decrease in household energy prices, a component that has been on the decline since August 2008. Food, on the other hand, maintained a four month path of falling prices by dropping 0.3%. The cost of food consumed at home dropped 0.5% for the sixth month in a row, whereas that of food away from home, a component that has been increasing since January 2003, did not change in May. On a year-over-year basis, headline inflation dropped 1.3%, the third consecutive negative monthly change.

Excluding food and energy, core consumer prices also increased by 0.1%, which is the smallest monthly change since December 2008. In the previous two months, core inflation was supported by large increases in the price of tobacco products, but that component dropped 0.3% in May. The shelter component rose 0.1%, exhibiting widespread increases across rent, lodging and owners equivalent rent. Prices of new and used automobiles also contributed positively by rising 0.5%, within which prices of used autos increased for the first time in fifteen months. Furthermore, the medical care and education and communication components both rose 0.3%, whereas apparel dropped 0.2%, led by decreases in prices of apparel for women, girls, infants and toddlers. On a year-over-year basis, core inflation rose 1.8% in May. In total, it has averaged a 1.8% yoy increase thus far for 2009, compared to a historical average of 2% yoy.

Core inflation expected to remain low but positive

May’s core CPI figures are in line with our baseline scenario of positive but low core inflation for 2009. Even though economic slack persists, with producer prices for core and intermediate goods on the decline, businesses may see higher margins and experience less pressure to lower prices in response to weak demand. Furthermore, rising inflation expectations, the anticipated increases in government spending, the Fed’s expansionary monetary policy and increasing labor costs are expected to keep inflation positive. Consequentially, we anticipate that the Federal Reserve will keep the Fed Funds rate at a low level for a prolonged period of time.


Archive

BBVA Bancomer  | Av. Universidad 1200 Col. Xoco México 03339 D.F.
http://www.bancomer.com/economica | e.economicos@bbva.bancomer.com

Legal disclaimer and risk disclosure

This document was prepared by Banco Bilbao Vizcaya Argentaria’s (BBVA) Research Department on behalf of itself and its affiliated companies (each a BBVA Group Company) for distribution in the United States and the rest of the world and is provided for information purposes only. The information, opinions, estimates and forecasts contained herein refer to that specific date and are subject to changes without notice due to market fluctuations. The information, opinions, estimates and forecasts contained in this document have been gathered or obtained from public sources believed to be correct by the Company concerning their accuracy, completeness, and/or correctness. This document is not an offer to sell or a solicitation to acquire or dispose of an interest in securities.

Related reports

Intraday Forex Technical Report - U.S. Update: More dollar corrections by FXstreet.com Independent Analyst Team
Fri, Nov 20 2009, 16:15 GMT

Weekly Market Commentary - The trend to lower interest rates continues by Mizuho Corporate Bank
Fri, Nov 20 2009, 15:48 GMT

London Gold Market Report by BullionVault.com
Fri, Nov 20 2009, 13:59 GMT

Macro Monitor - Czech Republic by Danske Bank A/S
Fri, Nov 20 2009, 13:17 GMT

Friday Notes - Rising inflation rates once again, but no inflationary pressure at all! by UniCredit Group
Fri, Nov 20 2009, 13:03 GMT

indicator, inflation, us, fundbanks, cpi

View All

Related content


Interested in forex trading? forex brokerage firms!


MG Financial Group
Contact the broker/FDM
Open a demo account
ACM Advanced Currency Markets SA
Contact the broker/FDM
Open a demo account
Forex Club Financial Company
Contact the broker/FDM
Open a demo account
MF Global FXA Securities Ltd.
Contact the broker/FDM
Open a demo account
Alpari (US), LLC
Contact the broker/FDM
Open a demo account

GET CASH BACK FOR YOUR TRADES!   Learn more about the Pip Rebate Program

Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.

Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Opinions expressed at FXstreet.com are those of the individual authors and do not necessarily represent the opinion of FXstreet.com or its management. FXstreet.com has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.

Any opinions, news, research, analyses, prices or other information contained on this website, by FXstreet.com, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXstreet.com will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.

©2009 "FXstreet.com. The Forex Market" All Rights Reserved.