Implications: Consumer prices were unchanged in April, exactly as the consensus expected. However, the lack of change in overall prices masked more worrisome details in the report. Energy prices fell 1.7% in April, reflecting what we all saw when we went to gas stations last month. But excluding energy, prices were up across the board. "Core" inflation, which excludes food and energy, was up 0.2% in April and is up 2.3% from a year ago, the largest gain since September 2008. This is already above the Federal Reserve's target of 2%. Meanwhile, monetary policy is very loose and housing costs (which are measured by rents, not asset values) are rising. Owners' equivalent rent was up 0.2% in April and is up 2.1% versus a year ago. The ongoing shift from home ownership toward rental occupancy should boost this inflation measure even more in the year ahead. With loose monetary policy and housing costs accelerating, it's hard to see core inflation getting back down to the Fed's 2% target anytime soon. On the earnings front, "real" (inflation-adjusted) wages per hour were flat in April. Although these earnings are down 0.5% from a year ago, the number of hours worked is up 2.1%, giving consumers more purchasing power. In other news this morning, the Empire State index, a measure of manufacturing in New York, increased to +17.1 in May from +6.6 in April, easily beating the consensus expected gain to +9.0. In other words, the factory sector continues to grow.
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Posted on Tuesday, May 15, 2012 @ 10:49 AM
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