by Larry Levin
I sure am glad Bernanke has that whole “100%” thingy going because otherwise this morning’s ISM report would raise inflation concerns. The table below compares the ISM’s Prices Paid Index with subsequent changes in the Consumer Price Index since 1950. I realize that prior points in history may not have had the same levels of excess capacity and slack in the labor market that we currently have…but I’m 100% confident they didn’t have $2.5 trillion floating around either.
The chart above shows the median change in CPI “N” months after an observation (prices paid reading). The bottom row tells us what the CPI will be when the prices paid reading is greater than 80, like today’s data.
In 12-months, the median consumer price index (consumer inflation) should be well north of the mad Bernanke’s target of 2%…it should be 6.2%!
Oh yeah, one more thing: a member of the Federal Reserve announced today that QE3 is very possible indeed. Hmm, I wonder if that inflation will be double the 6.2% level.
There was quite a short covering rally Tuesday during the first few hours of the day. After that the S&P traded with a narrow 3-point range to the close. Part of the reason was the morning’s ISM report that showed great strength in the manufacturing sector.
From the report… "The manufacturing sector grew at a faster rate in January as the PMI registered 60.8 percent, which is its highest level since May 2004 when the index registered 61.4 percent. The continuing strong performance is highlighted as January is also the sixth consecutive month of month-over-month growth in the sector. New orders and production continue to be strong, and employment rose above 60 percent for the first time since May 2004. Global demand is driving commodity prices higher, particularly for energy, metals and chemicals."
Sounds great, right? Maybe, but there is a problem inside the report that didn’t get much play today: input prices. Input prices were amazingly high and registered 81.5% in the index, which is up 9% since just last month. The escalating costs will either be eaten by the manufacturers and leads to much lower profits – or they get passed along to the consumer and you can say, “HELLO INFLATION.”
Food inflation is raging across the world and was reported to have been the final straw that led to revolutions in Tunisia and Egypt. But Ben Shalom Bernanke says we have absolutely nothing to worry about in the US. Moreover, he says it that inflation has nothing to do with his QE program, even though his stated goal of QE is to ignite (which it did) speculation in all market sectors…including commodities.
If history holds true, The Ben Bernank will be wrong on another very important subject: inflation and the value of your money. From ZeroHedge we read the stats…
From the report… "The manufacturing sector grew at a faster rate in January as the PMI registered 60.8 percent, which is its highest level since May 2004 when the index registered 61.4 percent. The continuing strong performance is highlighted as January is also the sixth consecutive month of month-over-month growth in the sector. New orders and production continue to be strong, and employment rose above 60 percent for the first time since May 2004. Global demand is driving commodity prices higher, particularly for energy, metals and chemicals."
Sounds great, right? Maybe, but there is a problem inside the report that didn’t get much play today: input prices. Input prices were amazingly high and registered 81.5% in the index, which is up 9% since just last month. The escalating costs will either be eaten by the manufacturers and leads to much lower profits – or they get passed along to the consumer and you can say, “HELLO INFLATION.”
Food inflation is raging across the world and was reported to have been the final straw that led to revolutions in Tunisia and Egypt. But Ben Shalom Bernanke says we have absolutely nothing to worry about in the US. Moreover, he says it that inflation has nothing to do with his QE program, even though his stated goal of QE is to ignite (which it did) speculation in all market sectors…including commodities.
If history holds true, The Ben Bernank will be wrong on another very important subject: inflation and the value of your money. From ZeroHedge we read the stats…
John Lohman provides some humorous commentary on this otherwise very sad topic.
I sure am glad Bernanke has that whole “100%” thingy going because otherwise this morning’s ISM report would raise inflation concerns. The table below compares the ISM’s Prices Paid Index with subsequent changes in the Consumer Price Index since 1950. I realize that prior points in history may not have had the same levels of excess capacity and slack in the labor market that we currently have…but I’m 100% confident they didn’t have $2.5 trillion floating around either.
The chart above shows the median change in CPI “N” months after an observation (prices paid reading). The bottom row tells us what the CPI will be when the prices paid reading is greater than 80, like today’s data.
In 12-months, the median consumer price index (consumer inflation) should be well north of the mad Bernanke’s target of 2%…it should be 6.2%!
Oh yeah, one more thing: a member of the Federal Reserve announced today that QE3 is very possible indeed. Hmm, I wonder if that inflation will be double the 6.2% level.
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