Gasoline Prices Give "Superficial" Boost to CPI

The CPI is up 0.4% for the month, and 2.2% year-over-year. The monthly increase is primarily due to a spike in gasoline.

The BLS reports the Consumer Price Index for November increased 0.4 percent seasonally adjusted; rising 2.2 percent over the last 12 months, not seasonally adjusted.

Core CPI, which excludes food and energy, rose 0.1 percent in November (SA); up 1.7 percent over the year (NSA).

As is typically the case regarding inflation, Econoday has laughable comments regarding the monthly jump in CPI.

Higher gasoline prices gave a superficial boost to the CPI headline which managed to meet expectations with a 0.4 percent November gain yet when excluding energy and also food, the core comes up 1 tenth short of Econoday's consensus and inched only 0.1 percent higher. A sharp 1.9 percent monthly drop in apparel pulled down the core and also offers strong evidence of holiday discounting which hints at weakness for tomorrow's retail sales report.

But apparel wasn't the only component pulling November's core down as medical care came in unchanged in the month and housing, which represents by far the biggest share of the CPI, slowed by 1 tenth with only a 0.2 percent increase (owners' equivalent rent sub-component also up only 0.2 percent). Two other readings of note are wireless services, which were weak early in the year but have since been rebounding including a 0.3 percent rise in November, and prescription drugs which have shown more recent weakness much of which is now reversed with a 0.6 percent gain.

Gasoline prices surged 7.3 percent last month but, in what points to headline weakness for the December CPI, have since been on the retreat. Food prices were also no help to the headline, coming in unchanged with only a 1.4 percent year-on-year rate.

The overall year-on-year rate did rise 2 tenths but is still soft at only 2.2 percent while the core rate edged lower to a frustratingly low 1.7 percent. Inflation is just lying around, not getting much push from wages in what is an increasing anomaly of this expansion. Yet however soft inflation remains, the labor market appears to be at full employment which gives Federal Reserve policy makers little choice but to raise rates at today's FOMC.

Soft Thinking

Econoday calls a 2.2% year-over-year jump in inflation "soft" and core inflation, up 1.7% "frustratingly" low.

The CPI is not soft, the thinking of Econoday is.

Every month the Econoday parrot (does a human really write this stuff?) offers similar comments.

Wages are barely keeping up with inflation, if indeed they are keeping up at all. Most would suggest not.

Yet, the Econoday parrot is always "frustrated" when your dollar does not depreciate at a faster rate.

Two Absurd Economic Theories

There is a need for inflation

1. The Fed can achieve it by talking about it
2. For proof of number 2, look at Japan.

In regards to point number 1, the BIS agrees that routine price deflation may be beneficial.

BIS Deflation Study

My Challenge to Keynesians “Prove Rising Prices Provide an Overall Economic Benefit” has gone unanswered.

The BIS did a historical study and found routine price deflation was not any problem at all.

“Deflation may actually boost output. Lower prices increase real incomes and wealth. And they may also make export goods more competitive,” stated the study.

For a discussion of the BIS study, please see Historical Perspective on CPI Deflations: How Damaging are They?

CPI deflation is not to be feared. More precisely, CPI deflation is a benefit. Falling prices increase purchasing power by definition and thus raise standards of living.

It’s asset bubble deflation that is damaging. When asset bubbles burst, debt deflation results.

Central banks’ seriously misguided attempts to defeat routine consumer price deflation is what fuels the destructive asset bubbles that eventually collapse.

Average 6th Grader vs Average Central Banker

The average consumer or any age wants money to buy more, not less. Even 6th graders understand the idea.

The average brainwashed economist thinks there is an economic benefit to having money buy less, not more.