He Who Sees No Inflation

If this chart weren’t so sad, it might be funny. The Federal Reserve’s track record in proactively predicting inflation isn’t funny. It’s embarrassing.

Never mind Bernanke suggesting we had no inflation with oil at $150/barrel in 2008, he never saw it coming in 2007 to begin with. In the chart below, we have outlined the headline producer price index (PPI), monthly, going back 3 years.

I know, I know. Some of Washington’s finest revisionist historians don’t use the headline numbers. They apparently are in the business of taking the government’s word for it on what is “core.” That’s actually funny.

This morning’s PPI report came in at +4.4% year-over-year growth. Even if you do trust the government’s calculation, that’s inflationary.

Since government hired economists are in the business of commenting on Made-off numbers, here are some thoughts on Made-up the numbers:

  1. If you want to exclude things like meat and eggs (heck, maybe you don’t eat these things), then producer prices were lower (eggs prices were +8.5% y/y and meat was +4% y/y).
  2. If you want to exclude gasoline (heck, maybe your businesses margins don’t include gasoline), then producer prices were higher (gasoline was down -7.4%).
  3. If you want to look at a price chart of oil or gasoline since the February lows, you can do that too – that’s going to look inflationary

Today’s report was based on February prices. Prices in March (again, depending on what’s relevant to your profession) are, by and large, a lot higher than where they were in February. Heck, stock prices alone are up +10.2% since February 8th; maybe we should ask people who are in the business of producing returns on the short side if we should include that in the PPI calculation!

The chart below doesn’t lie; politicians lie about inflation. If you want to tell me that inflation slowed sequentially by 20 basis points y/y versus the January inflation report of +4.6% year-over-year price growth, I will agree with you. I’ll also ask you whether you agree with me or not that the PPI will re-accelerate sequentially in March. Just don’t ask He Who Sees No Inflation (Ben Bernanke) what he sees. Sadly, that too is proactively predictable.

KM

Keith R. McCullough
Chief Executive Officer

He Who Sees No Inflation - usppi