Inflating the Future?

Is deflation over?


Around the world markets have been worried about deflation. And the latest CPI release seems to validate these worries. Year-over-year, inflation is flat. And it was flat last month as well. Are we about to turn Japanese, struggling with deflation, where folks stop buying because things just get cheaper every month?

Probably not. The latest headline inflation numbers have been depressed by oil prices. Core inflation–excluding food and energy prices—has been running about 1.5%. And lately, it looks like it’s been trending ever-so-slightly higher.

Source: BLS

How could core prices in the US be rising, when around the world, they’ve been falling? The answer may lie in the delays that plague government data. The Labor Department and Commerce Department employ hundreds of surveyors who sample tens of thousands of prices every month—everything from legal fees to kumquat prices. They compile that data and put weights on it. The whole process takes over a month. The government has done it this way for decades.

But there’s a better way.

Some researchers have created screen-scraping algorithms that automatically collect billions of prices off the internet—from Amazon to Zillo—and let their computers compile the index. It’s far more data-intensive, and a lot more timely. These data indicate that deflations pressures may have bottomed. Indeed, it looks like prices are headed back up.Month-over-month Inflation. Source: PriceStats

So it’s a good thing the Fed’s been telling us they might not be so patient. Because if prices keep rising, their rates will too.

Douglas R. Tengdin, CFA
Chief Investment Officer
Phone: 603-224-1350
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