Inflation Warning: US Import Prices Rise 2.7% YoY In September (US Export Prices Rise 2.9% YoY)

If you are looking for inflation that is seemingly missing, try the US import and export prices. US import prices by end use rose 2.7% YoY in September and US export prices by end use rose 2.9% YoY.

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Since John Taylor is being considered from The Fed  Chair, let’s take a look at The Taylor Rule which uses Core PCE price growth YoY as its measure of inflation.

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Since Core PCE Price growth YoY roughly follows import prices YoY, let’s see if we get that turnaround in Core PCE Price growth that has been hovering.

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Bear in mind that gasoline and diesel prices rose quite a bit in September with gasoline prices falling in October. The Fed doesn;t consider energy prices in their inflation calculations.

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Take import prices. Once we remove petroleum prices, import prices YoY grew at only 1.2%.

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Yes, inflation (if you ignore energy) is still MIA (missing in action).

“I’ll just erase inflation but taking out energy prices.”

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The Bitcoin “Smile”: Bitcoin Continues Surging As US Dollar Continues Devaluation of Consumer Purchasing Power

The Federal Reserve was created by an act of Congress in 1913 and a stroke of the pen by President Woodrow Wilson. And the purchasing power of US consumers has never been the same.

Enter Bitcoin, the worldwide cryptocurrency and digital payment system. Currently, one  Bitcoin equals $4,396.00.

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While this looks like a volatility smile, it is not. It does show the erosion of the purchasing power of the US Dollar and the rise of an alternative currency: the  cryptodollar.

In a remarkably frank talk at a Bank of England conference, the Managing Director of the International Monetary Fund,  Christine Lagarde, speculated that Bitcoin and cryptocurrency have as much of a future as the Internet itself.  It could displace central banks, conventional banking, and challenge the monopoly of national monies.

This the polite version of Dennis Hopper’s preference for Pabst Blue Ribbon beer.

Hey, although he signed The Federal Reserve into existance, at least he could pitch!

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Fed’s Yellen Backs Off “Inflation Around the Corner,” Now Sings 2% Inflation Over The Next Few Years

(Bloomberg) — Fed Chair Janet Yellen said FOMC may have misjudged fundamental forces driving inflation and strength of labor market, and policy makers “stand ready to modify our views based on what we learn.”

“We will need to stay alert” and adjust monetary policy as information comes in, Yellen said in text of speech Tuesday in Cleveland during annual meeting of National Association for Business Economics  

“My colleagues and I must be ready to adjust our assessments of economic conditions and the outlook when new data warrant it”

Downward pressures on inflation “could prove to be unexpectedly persistent” 

Economic outlook is subject to “considerable uncertainty”

FOMC’s understanding of the forces driving inflation is “imperfect,” policy makers recognize “something more persistent” may be responsible for current undershooting of long-run objective

While inflation will most likely stabilize around 2% over the next few years, “odds that it could turn out to be noticeably different are considerable”

There’s also risk that inflation expectations “may not be as well anchored as they appear and perhaps are not consistent with our 2 percent goal”

Stabilizing inflation at around 2% “could prove to be more difficult than expected”  

Key assumptions underlying baseline outlook “could be wrong” in ways that imply inflation will remain low for longer than currently projected; for example, labor market conditions may not be as tight as they appear

Under certain conditions, “continuing to revise our assessments in response to incoming data would naturally result in a policy path that is somewhat easier than that now anticipated”

Significant uncertainties strengthen the case for gradual pace of tightening; however, Fed must also be wary of moving too gradually; “it would be imprudent to keep monetary policy on hold until inflation is back to 2 percent”

Actual value of long-run sustainable unemployment rate “could well be noticeably lower” than FOMC currently projects; can’t rule out possibility that some slack still remains in labor market

Unemployment rate is probably “correct” in signaling that labor- market conditions have returned to pre-crisis levels; however, that doesn’t necessarily mean that economy is now at full employment

Data suggest a generally healthy labor market, although can’t make “any definitive assessment”; policy makers “must remain open minded on this question” and its implications for reaching inflation goal  

NOTE: In Sept. 20 press conference, Yellen said fall in inflation this year was a bit of a “mystery”

“A more important issue from a policy standpoint is that some key assumptions underlying the baseline outlook could be wrong in ways that imply that inflation will remain low for longer than currently projected.”

Like excluding home price growth from inflation calculations?

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Good guess that 2% inflation may be hard to find since Core CPI price growth YoY (yellow line) exceeded 2% only briefly in 2012 after The Great Recession.

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And the market risks overheating if more rate hikes don’t occur.  Ahem.  Despite Atlanta Fed President Raphael Bostic saying “I actually don’t think that our policies are too easy in the sense of really facilitating some sort of asset bubble,” asset prices look increasingly frothy.

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Here is Yellen singing “Inflation around the corner for us.”

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Inflation Mirage: Core Inflation Declines To 1.7% YoY, Real Average Hourly Earnings Decline To 0.7% YoY

Inflation must seem like a mirage to Janet Yellen and The Federal Reserve. And no, it isn’t an oasis either. The US economy can’t seem to find inflation or wage growth despite near full employment (according to the Federal government, that is).

Core CPI YoY less food and energy fell to 1.7%, but it is still higher than core PCE growth YoY of 1.505% (The Fed’s preferred inflation measure).

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CPI for shelter YoY fell to 3.26% in July, still 2x core inflation. And 5x hourly wage growth.

US Real Average Hourly Earnings 1982-1984 USD YoY also declined to 0.7% YoY.

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Now, if the Federal government included home prices in their inflation calculation, problem solved! Case-Shiller home prices are growing at a steady 5.7% YoY, considerably higher than wage growth.

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Here is a breakdown of the headline CPI numbers.

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And here is a chart explaining why The Fed keeps saying inflation is around the corner, but never seems to get there.

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With emphasis on hot air.

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Winter Is Coming? S&P P/E Ratio Near 10 Year High and CAPE Is At Black Friday Levels

Global central bank (including the US Federal Reserve) has been providing massive liquidity to financial markets, paritcularly (in the case of The Federal Reserve) since June 2007.

While some think asset bubbles are hear, former Fed Chair Alan Greenspan thinks there is a bond bubble, but not an equity bubble.

However, the equity market is priced at a pretty heady level. The S&P 500 Forward 12-month P/E ratio is near its high for the last ten years (corresponding to the massive intrustion in financial markets by The Fed).

NYSE margin is near the all-time high (from Doug Short).

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And Robert Shiller’s CAPE (cyclically adjusted price-to-earnings ratioratio is about at the same level as Black Tuesday, October 29th 1929.

While Black Tuesday was a memorable event, the more recent crashes were worse (dot.com and financial crisis).

Of course, this doesn’t mean that the equity markets will crash just like the Yosemite Supervolcano isn’t necessarily going to erupt on any given day.

But Winter is Coming.

 

Inflation? June Core PCE Price Growth Flat At 1.5% YoY (As Personal Income & Spending Growth Remain Near Zero)

June’s report on Core Personal Consumption Expenditure (PCE) Price growth shows no increase (from the upgraded numbers from May). According to the Bureau of Economic Anaysis, June’s Core PCE Price growth remained at 1.5% YoY (and up 0.1% MoM).

Yes, the US economy is still below The Fed’s 2% target for inflation.

Personal Income and Spending in June? No growth in Personal Income and a 0.1% growth in Personal Spending.

Here is The Fed’s Chairman Janet Yellen talking to her Vice Chair Stanley Fischer: “I could have sworn that there was going to be inflation.”

Venezuela’s 2Y Sov Yield Hits 62.30% As Riots Spread During Election

Venezuela is a mess. The Guardian has this article on the sham elections in Venezuela where President Nicolas Maduro claims a victory for his policies, such as 844%.inflation and chronic shortages in this command economy.

Riots are spreading thoughout Venezuela which Maduro claims is excitement over his enlightened economic and monetary policies.

And then there is the problem that the US is weighing sanctions against Venezuela that could severely restrict the OPEC nation’s crude exports and starve its government of hard currency.

(Bloomberg) — U.S. sanctions against Venezuelan officials include a key figure in some of the oil-for-cash deals with China that are central for the survival of Petroleos de Venezuela SA.

Simon Zerpa, vice president of finance for PDVSA, is the only current official of the state-owned oil company among 13 Venezuelan nationals who were sanctioned by President Donald Trump Wednesday. A self-taught diplomat and socialist financier, he’s managing the debt of one of the most distressedborrowers in emerging markets. Zerpa, 33, also helps direct the $45 billion that Venezuela has borrowed from China to boost crude production.

The sanctions come at a time when PDVSA is struggling to make ends meet. Oil production is slumping, despite the world’s largest proved reserves. The company has an upcoming debt payment of $3.2 billion this year, most of it due in October and November. Earlier this month, Zerpa sought to improve communication with investors through invitation-only conference calls, after Goldman Sachs Group Inc. was grilled for buying Venezuelan “hunger bonds” that, according to the opposition, helped to keep president Nicolas Maduro in power.

“It’s a huge blow in terms of new financing to Venezuela,” Alejandro Grisanti, director of the Caracas-based consultancy Ecoanalitica, says by phone. “After all, Zerpa manages all the finances not just for PDVSA but also for the Venezuelan government.”

The result? Venezuela’s 2 year sovereign yield now tops 62%.

Meanwhile, the Venezuela basket (oil) remains depressed relative to neighboring Colombian oil prices.

Here is President Nicolas Maduro claiming that there is nothing to see here in the elections.