US core CPI declines for the first time since 1982

Most of you probably saw this already but I think it may be important. As recently as three years ago, very few would have thought it was possible, but the core CPI in America actually declined in January. Like most events in the last couple of years, this was an unusual occurrence with it having occurred before in 1982—more than 25 years ago. Marketwatch provides some details:


With shelter costs dropping sharply, U.S. core consumer prices fell a seasonally adjusted 0.1% in January, the first measurable decline since 1982, the Labor Department estimated Friday.


Core prices, which exclude food and energy costs, are considered a good indicator of underlying inflationary pressures. In January, prices fell for hotel rooms, home ownership costs, new cars, airfares and clothing.

Overall, the consumer price index rose a seasonally adjusted 0.2% in January for the fifth straight month, the Bureau of Labor Statistics said. Higher energy and medical costs more than offset the largest decline in services prices since 1982. Read the full report on the BLS website.

Inflation was weaker than expected by economists surveyed by MarketWatch, who were forecasting a 0.3% increase in the overall CPI and a 0.1% gain in the core CPI


The overall CPI was up 0.2% but the core was down 0.1%. The decline was due to shelter-related components. IANAE, but like nearly all economists, I think core inflation is what matters. However, inflation is a lagging indicator so it is more of a test of one's past views than the future.

The decline is to be expected but the question is whether it will persist. Calculated Risk points out that 'owner's equivalent rent' is the biggest component of CPI and their expecation is for it to continue to decline. IMO there is also the possibility for commodity prices to decline as central banks shut off liquidity.

Comments

Post a Comment

Popular Posts

Thoughts on the stock market - March 2020

Image
Right now, DJIA has a P/E of 16.8 and forwand P/E of 15.1, whereas S&P 500 is at 20.1 with forward P/E of 15.8. Source: WSJ market Data If you ignore interest rates and inflation expectations--both of these influence valuations but depends on your macro call-- the market is not cheap. Long-term P/E is around 15. Trailing P/E is around 20% (Dow) to 40% (S&P500) higher than average. Forward P/E is in line with long term average but that assumes a strong V recovery. Consensus forecast is for profits to drop 1.2% in 2020. In 2008, it dropped 25.4% so current forecast is a very mild recession. Covid-19 coronavirus is not going to last more than a few months but these forecasts are still too rosy in my opinion. So I wouldn't rely on forward P/E. The richly valued (mostly tech or high quality) have not fallen much but the distressed ones have. So if you want to outperform in the long run, I think one’s choice right now is to: • Wait for market to fall another, say...
✖ READ MORE >>>

Warren Buffett's Evolution and his Three Investment Styles

Image
A Young Warren Buffett In a comment to one of my posts , Mark Carter, who incidentally appears to have a  good blog worth checking out , asked: "Buffett Prime is 1970's to early 1990's" Could you elaborate? I have vaguely indicated how I view Warren Buffett in the past, but I thought I would detail my view of his investing behaviour. This is more of an opinion piece and many others would disagree with me (if you do, I'm curious to hear your thoughts). I don't follow Warren Buffett as closely as many value investors so I may get some facts wrong. My view is that Warren Buffett went through three different phases, with each consisting of different investment techniques. The overall investment theory remained the same—what people call value investing—but his execution, tactics, and strategy differs across the three phases. Some people may break up his career into additional periods but my feeling is that the three I will describe essentially capt...
✖ READ MORE >>>

Hugh Hendry discussion at the Alternative Investment Conference

Thanks to Value Investing World for bringing this Hugh Hendry interview to my attention. I may not agree with all the things—short-term orientation of hedge funds is actually worse IMO; the sharp pencil effect doesn't always work—but Hendry is a true contrarian and worth listening. Like Marc Faber or Jim Rogers, you also can't take everything Hugh Hendry says seriously. I had always felt Hugh Hendry was firmly in the deflation camp but I get the feeling that he is now opening up to high-inflation possibilities. Otherwise, his stance appears to be similar to past opinions.
✖ READ MORE >>>