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Posted by Kirk Lindstrom May 15, 2007 |
Since inflation is falling, the pressure by the "inflation hawks" should not be strong enough to cause the Fed to raise rates at their next FOMC meeting. The Federal Reserve is doing a masterful job at containing inflation induced from higher energy and commodity prices while not sending the economy into a recession or causing high unemployment. Likewise, core CPI is still too high vs. the Fed's comfort level of one to two percent core inflation so I don't expect them to lower rates at the next FOMC meeting either.
- U.S. core CPI up 2.3% in past year, lowest in a year
= > > Kirk Comment: higher rates are working to Bring this down but it is still out of the Federal Reserve's "comfort zone" of 1.0 to 2.0% a year.
- U.S. CPI up 2.6% in past year
= > > Kirk Comment: I consider this about average inflation. It is not low inflation by any stretch of the imagination despite the federal reserve slowing money supply growth with higher interest rates and other monetary actions.
- U.S. April CPI food prices up 0.4%
- U.S. April CPI energy prices up 2.4%
= > > Kirk Comment: It sure looks like energy is going up more than food so higher energy prices are dominating the inflation numbers, Brinker's protestations don't seem to help.
- U.S. April core CPI up 0.2% as expected
- U.S. April CPI up 0.4% vs. 0.5% expected
= > > Kirk Comment: I paid $3.55 per gallon of Regular yesterday. $68 for 19 gallons of gasoline. It was not long ago we were griping about $40 for 19 gallons of gasoline. The extra $28 won't change my lifestyle, but it sure is inflationary because people will demand higher salaries and prices for their goods and services so they can maintain their standard of living. In a healthy economy with low unemployment as we have today, this means you have to give your workers raises or they'll leave for better pay.
Numbers don't lie or spin.
Table A of the CONSUMER PRICE INDEX: APRIL 2007 Press Release from the BLS shows the compound annual rate contributions for the various components. Number one contributor is 43% for Energy followed by Transportation at 17.4% (you have to buy gasoline to transport something.) Nothing else on the list is in double digits. Food prices are up considerably also which makes sense it takes energy to pump water to grow produce and feed for livestock.
It sure looks like the Federal Reserve continues to be right keeping rates at 5.25% compared to following the advice of many on TV and radio who think otherwise. My hat is off to the Fed for engineering what seems to be a soft landing of the economy while bringing down the inflation caused by higher energy prices.
Kirk Lindstrom: DISCLAIMER: Answers & my words are general in nature, are not meant as specific investment advice, and do not necessarily represent the opinion of anyone but Kirk. Individuals should consult with their own advisors for specific investment advice. In addition, past performance does not guarantee future results.