Dec. 13th 2007
I’d say I told you so, but my proof was two message boards ago. What’s up! Inflation!
Let me sift through the chaff for you:
“Wholesale prices shot up 3.2 percent, the biggest jump in 34 years, propelled by a record rise in gasoline prices.”
That’s not an annualized rate. That’s in one month for an annual rate of 38.9%. Good thing they provided an excuse: gasoline!
Excluding the volatile food and energy sectors, the Labor Department said inflation rose by 0.4 percent.
So… exculding the two things that are the least flexible budget items for all consumers, it was still a 4.9% annual pace, which is sort of high. I don’t want to miss the point here though: what purpose does it serve to measure inflation if you eliminate the two most important items from the metric? Everyone needs food an energy. Demand is quite ineleastic, and we’ve already seen that it takes large increases in energy prices to impact our consumption. Furthermore, our economy is currently focused around just in time inventory systems, which require small inventories and frequent shipments of sales stock just before it is needed. Sound fuel intensive? Food is obviously even more inelastic in its demand for consumers.
The Commerce Department reported Thursday that retail sales surged by 1.2 percent last month, double the gain that economists had expected.
Wow this is really good news! Good news = no qualifiers, like excuses about gasoline. A few paragraphs later…
Excluding gasoline, retail sales would have been up by a still solid 0.6 percent.
Oh.
Sales were down, however, for autos, falling by 1 percent after a 0.6 percent drop in October. Domestic automakers have been struggling with weak demand in the face of surging gas prices.
It’s a good thing that we can strip energy prices out of the inflation report!
This is a WHOLESALE inflation report. This does not guarantee that you will see prices go up by 3% next month (or last month). Competitive markets will require that the various retailers of products will try and eat as much of the cost increase as possible for as long as possible in the hopes that costs will either go down or that they will not be the first in their market to blink.
What this does mean:
Increased possibility for consumer inflation
Downward pressure on corporate profits (from eating increases in wholesale costs)
So there you go. 38.9%. That’s a big number.
Instant Feedback: Jan 31st: One month later, consumer inflation continues to resist the influences of high material costs at the wholesale level.
