Friday, July 11, 2008

Worried? Petrified about risng import prices? Don't bother

When it hits the fan you cannot escape it...
Oh yeah…export and import prices are really surging now, and you just can’t subtract enough high-rising components out to be left with anything that is tranquil.

The subtractive approach to stable prices does not work (let’s see if you subtract oil and food and… from import prices inflation is stable after all but that's because there is nothing LEFT!!).

Export price trends are weak however...
And US export prices despite a weak dollar that should allow exporters to HIKE dollar prices while they lower foreign currency prices, export prices are even MORE CONTAINED than are import prices for core items… that suggests it is still a hostile environment for trade…

Even so despite these price trends, one thing stands as a sea of tranquility apart from the storm of inflation pressures and that is…

All hail the Core CPI!
The DOMESTIC core CPI. The goods core CPI which can be compared to consumer goods ex food is still quite stable. Even the domestic core PPI (all goods) is up sharply.

Two mints in one? Two oil price effects at once?
The start of the story of core is a story of OIL. It is like those fabled mints that are two , two, two mints in one. One is a deflation mint the other is an inflation mint. Put them in your mouth at the same time and its like mixing matter with anti matter…well ok not exactly…but it doe get messy.

Policymakers, nonetheless, can suck on that one for a while and decide what to do as it melts in their mouths.

Dueling oil price effects-
The income that oil and food prices are directing away from the consumer is having a BIG impact on non food and non oil prices (core prices). That’s how monetary policy works and why
economists warn not to confuse a shift in relative prices with inflation. Now if price of A is rising and price of B is not but if the price index is the price of (A+B) then inflation (headline inflation) will be rising but if most of the economy is made up of 'good B', is that inflation? Even if good A’s price goes up by a lot, is it?

Question: if a consumer’s discretionary income falls in the forest and no one can hear him scream, does it still affect his spending habits? (answer: yes).

Money - the root of all evil and inflation to boot
You are reminded that money growth in the US is NOT accommodating any inflation. M2 and MZM aggregates are lower ('LOWER,' 'down.' 'DECLINING', NEGATIVE GROWTH RATES, etc. – unlike the explosive and barely slowing Euro-liquidity growth rates…just a reminder) over four weeks as well as over three months and weak or falling over six months. It’s no wonder that inflation is finding it hard to get started.

Yes we have no inflation: or why corn does not grow in the desert
Yes there is plenty of seed (rising import prices oil etc) but no fertile ground to plant it in (weak income and wage growth) and no liquidity at all to help it grow or nourish it. You can thank bank lending standards for part of that dry gulch stuff and the Fed for the rest.

Inflation? BAH HUMBUG!

I guess it’s not as bad as it seems

I’m not WORRIED after all.

Never mind…