Saturday, December 23, 2006

Will The Real Inflation Rate Stand Up?

OK -- so where is inflation right now? Well, it depends on who you ask.

According to the BLS, it decreased last month.

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.1 percent in November, before seasonal adjustment, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. The November level of 201.5 (1982-84=100) was 2.0 percent higher than in November 2005.

But producer prices were much higher last month:

The Producer Price Index for Finished Goods advanced 2.0 percent in November, seasonally adjusted, the Bureau of Labor Statistics of the U.S. Department of Labor reported today. This gain followed declines of 1.6 percent in October and 1.3 percent in September. The index for finished goods other than foods and energy rose 1.3 percent in November compared with a 0.9-percent decrease in the previous month. At the earlier stages of processing, prices for intermediate goods moved up 0.7 percent after falling 1.1 percent in the prior month, and the crude goods index increased 15.7 percent following a 10.5-percent decline in October.

According to the Bureau of Economic Analysis, the GDP deflator increased in the third quarter. This is a quarter to quarter comparison, whereas the PPI and CPI are month to month.

The price index for gross domestic purchases, which measures prices paid by U.S. residents, increased 2.2 percent in the third quarter, 0.1 percentage point more than in the preliminary estimate; this index increased 4.0 percent in the second quarter. Excluding food and energy prices, the price index for gross domestic purchases increased 2.2 percent in the third quarter, compared with 2.9 percent in the second.

Then there is the personal consumption expenditure (PCE) released yesterday:

PCE prices -- The price index for PCE increased less than 0.1 percent in November, in contrast to a decrease of 0.2 percent in October. Prices, excluding food and energy, increased less than 0.1 percent, compared with an increase of 0.2 percent.

Finally, there is the Cleveland Fed's median CPI number

According to the Federal Reserve Bank of Cleveland, the median Consumer Price Index rose 0.2% (3.0% annualized rate) in November. The median CPI is a measure of core inflation calculated by the Federal Reserve Bank of Cleveland based on data released in the Bureau of Labor Statistics’ (BLS) monthly CPI report.

So -- all of these reports which are supposed to measure inflation all tell a different tale. The trick is to figure out which one is telling the truth, or which combination is telling the truth.

Right now I have no idea which one -- or which combination -- I like better. But, there are a lot of choices, aren't there?