CPI Thoughts

July 15, 2011
Consumer Price Index Summary

The Consumer Price Index for All Urban Consumers (CPI-U) decreased 0.2 percent in June on a seasonally adjusted basis, the U.S. Bureau of Labor Statistics reported today.

The headline number wasn't all that surprising. I had been leaning deflationary. Check out those apparel prices though. Up 2.6% in just two months? Did the world just run out of cheap labor or something? I doubt it is sustainable, but wow. Perhaps my t-shirt, underwear, sneakers, and socks hoard (no joke) will finally start paying off, lol. Sigh.

In all seriousness, I do think cheap apparel (not the high end stuff with plenty of markup) is probably not going to keep getting cheaper over time (like it has). I could be wrong but that's why I hoarded it.

The big question is where the CPI goes from here.

The WTI spot price averaged $100.90 in May. It averaged $96.26 in June. That explains much of the deflation in the overall number. It is essentially unchanged in July so far ($96.55 average).

My short-term mood is still deflationary I guess (as seen in the upper left hand corner of my blog). You can probably sense my level of conviction. It isn't much.

I just don't trust that the global economy is strong enough to support $100 oil even with the "cash is trash" global monetary policies (and ours in particular). At the very least, I would expect oil's price to stagnate at these levels. Time will tell.

In any event, I don't make investments based on the short-term. I own TIPS which are directly tied to the CPI. I lost 0.2% in nominal terms based on this report. I'm fine with that. All I care about is purchasing power. As I've said here repeatedly, I own inflation protected treasuries but I do not root for inflation. All I get from higher inflation is extra taxation (on the gains) and reduced real purchasing power.

I consider this to be a tame CPI report and one that won't keep me up at night. I'm thankful for that.

Trivia: We had 11 straight months of seasonally adjusted CPI increases. June broke the streak.