Why Today's CPI Data Are Just as Ugly as Retail Sales

Sleeping giants are rising.
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Guess Things Happen That Way

JACKSON HOLE, Wyo. -- The

Consumer Price Index

numbers ought to be considered at least as painful as the

retail sales

figures.

Here's why.

(a) The CPI for housing rose 0.3% in November.

Compare that to a monthly increase that averaged two-tenths during the year prior -- and note that this index has now posted an increase of 0.3% or bigger during two of the past three months. That's not happened in two years.

(b) The CPI for services rose 0.4% in November.

Compare that to a monthly increase that averaged two-tenths during the year prior -- and note that it goes down as the biggest in more than three years.

(c) The CPI for medical care rose 0.4% in November.

Compare that to a monthly increase that averaged three-tenths during the year prior -- and note that this index has now posted an increase of 0.4% or bigger during four of the past eight months. That's not happened in four years.

In sum, we've seen (a) + (b) + (c) increases as big as this 1.1% November combo only once since August 1996.

Most commentators and market analysts and economists will nevertheless point to the fact that rate of core (excluding food and energy) price increase did not accelerate between October and November -- it held at 2.1%, two-tenths higher than the trough it put in in August -- and conclude that today's price news will prove comforting to policymakers.

And, for at least three reasons, that would be a mistake.

First, because the CPI is correctly classified as a lagging indicator. It has yet to really show the acceleration that some of the leading price indicators have been showing for more than a year now.

The risk is that it will begin to do so, and policymakers must be mindful to not fall any further behind the curve than they already have.

Second, because sleeping giants are rising. On a goods-vs.-services basis, the services index accounts for roughly 58% of the total CPI; on an expenditure-category basis, medical care and housing together account for almost half.

All three might actually be beginning to show the kinds of things that we already

know are happening in the real world.

And third, because of one entirely nagging question.

If it's really some kind of New Era miracle that's been carving chunks out of the core price measures in recent years, then why would it stop working its magic now?

Why would the miracle suddenly stop yielding the degree of help it's been providing?

And the answer (of course) is that it never existed to begin with.

Meat Puppets

There are two things to take away from the retail sales data.

The first is that the strong Christmas-spending profile recently presented

here just got stronger. While a 7.7% increase seemed likely a month ago, a 9.4% (!) gain looks likely now.

The second is that consumption in general is still on a tear. The

personal consumption expenditure

series, which turned in a 5.9% increase last year, is on track to rise at about a 7.2% year-on-year rate during the fourth quarter.

That kind of spending ain't been seen in seven years.

Side Dish

Has anybody heard anything about some kind of transit strike?

Best barbecue?

Tejas.

Missouri.

Alabama.

Tennessee.

North Carolina.