ECRI: Monthly Future Inflation Gauge Readings

[HenryTo]

ECRI's future inflation gauge now at a five-year high. Courtesy of MplsBear at wallstreetbear.com:
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U.S. inflation pressures rose in Aug - report
Fri Sep 2, 2005 09:39 AM ET

NEW YORK, Sept 2 (Reuters) - Higher interest rates and input prices, an increase in loan activity and stronger job growth all pushed U.S. inflation higher in August, a report said on Friday.

However, the rising inflation pressure was partly offset by supplier delivery times, the Economic Cycle Research Institute said.

ECRI's Future Inflation Gauge, which is designed to anticipate cyclical swings in the rate of inflation, rose to 121.1 in August from a upwardly revised 119.7 in July, the research group said.

The index's annualized growth rate, which smooths out monthly fluctuations, climbed to 4.1 percent from an upwardly revised 2.3 percent.

"The U.S. future inflation gauge is now at a five-year high, suggesting that cyclical inflation pressures in the U.S. are intensifying," said Lakshman Achuthan, managing director for the ECRI.

[HenryTo]

Anecdotal story: ACS (Affiliated Computer Services) imposed a merit increase freeze for the 3Q and rumor is that this will extend into 4Q. Many folks are still being the "good soldier" and are just glad they have a job going into Thanksgiving of this year.
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US inflation pressures fall to a six-year low - ECRI
Fri Sep 5, 2008 9:41am EDT

NEW YORK, Sept 5 (Reuters) - U.S. inflation pressures fell in August to a six-year low, driven by disinflationary moves in measures of commodity prices, labor market conditions and vendor performance, a report said on Friday.

The Economic Cycle Research Institute's U.S. Future Inflation Gauge (USFIG), designed to anticipate cyclical swings in the rate of inflation, fell to 109.3 in August from 112.4 in July.

The reading was the lowest since July 2002, when the index stood at 108.2.

"With the USFIG falling to a fresh 73-month low, underlying inflationary pressures are now falling even more rapidly," said Lakshman Achuthan, managing director at ECRI.

"This inflation outlook from the FIG is in line with the fact that business cycle recessions always kill inflation as discretionary spending comes under pressure."

The USFIG annualized growth rate, which smooths out monthly fluctuations, took a dive to negative 11.0 percent from minus 7.5 percent in July, revised up from negative 7.6 percent.

[Odysseus]

Inflation seems to always begin as an event. It was oil shock in the early 70's and oil shock in the 2000's. If central banks fund the shock and increase the money supply, you get demand pull inflation.

The cost push side of the equation now kicks in. Labor WILL demand to be compensated. We are only now seeing the beginnings of labor unrest.

I know that the old unionized manufacturing jobs, a large percent anyway, have been moved overseas but try outsourcing your plumber, civil servant, teacher, fireman, policeman and truck drivers.

Cost push is coming in the U.S. and Europe and no doubt profit margins will revert to the mean once again. Inflation has a nasty feed back cycle.

Just a thought.
_________________
Psychic with Alzheimers. I can predict what I will forget.

[HenryTo]

The FIG is supposed to have a mean lead time of 11 months and a median lead time of 9 months at inflation cycle turns, so we will see. Also, their FIG's annual growth rate for the Euro Zone has been rising and are now near cycle highs so their indicator is not "broken," so to speak.

When it comes to inflation expectations, the Fed talks a lot about "anchoring" expectations - that is, as long as households believe in the long-term credibility in the Fed, then long-term inflationary pressures (i.e. spiraling inflation) will not be high since households:

1) Won't be asking for dramatic wage increases
2) Would be saving and investing - as opposed to spending because they believe higher prices will wipe out their savings in the future

Moreover, the inflation numbers are inherently backward looking. With a slackening and flexible labor market (as opposed to Europe's), and with housing prices coming down, it is difficult to see what will trigger demand-drive inflationary pressures going forward. The Fed has to look forward, not backwards. Also, the largest chunk of headline inflation is coming from higher oil, natural gas, and now coal prices. A bunch of Berkeley economists wrote a paper discussing that most of the food inflation over the last 12 months has actually coming from higher energy prices, and not increasing food prices such as in corn, wheat, etc. That's because the end-product is infinitely more complex than what is harvested in the fields. Transportation costs also need to be taken into acount as well.

As I discussed in our commentaries, to the extent that inflation is being caused by energy prices - and to the extent that it is being caused by supply constraints - the Fed actually needs to ease to create incentives for energy companies to increase capital spending or for folks like CalPERS to help spawn new industry in alternative energy areas such as biofuels, solar power, and so forth. This is a position advocated by Jack Treynor and I think it makes a lot of sense. In other words, the easing in the FFR is actually deflationary for future energy prices. The transmission mechanism here is the capitalistic/flexible U.S. economy - this logic only works here and not in most other countries - simply because there aren't as many entrepreneurs (as a % and in an absolute sense) in other countries - and who can be so innovative.

My main concern is that the Fed may be losing credibility among Americans in general, but as long as there is "slack" in the labor markets, these guys won't be able to "reinforce" this viscious cycle by asking for higher raises, etc. By the time they can, the headline CPI number should have come down already (note that even if oil prices stay at $90 a barrel this time next year, energy CPI would still decline). My guess is that the Fed is still willing to "trade off" a year's worth of high headline inflation for long-term sustainable growth for the next few years at least.

[rffrydr]

He initiated a buyback program when his stock was already up 5 fold. Careful with those guys, they've got the pedal to the medal.

I agree about the "core" rate becoming a lie; however as Henry says, at 100 dollar oil next christmas inflation will be zero.
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Today is the Tomorrow you worried about Yesterday!

[BlueDaze]

[HenryTo]

ECRI's Future Inflation Gauge for the month of February hit a reading of 115.9, a new low for this cycle. Annual ROC now at -5.4%. January's reading was revised lower to 117.7.

No inflationary feedback loop according to the ECRI.

[HenryTo]

According to the ECRI, inflationary pressured edged up slightly in their latest readings - but is still currently in a cyclical downtrend, despite the Fed's rate cuts over the last four months:
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U.S. inflation pressures edge up in January: ECRI

NEW YORK (Reuters) - U.S. inflation pressures edged up in January as inflationary moves in commodity price and interest rate measures were partly offset by a disinflationary move in a measure of loans, a report said on Friday.

The Economic Cycle Research Institute's U.S. Future Inflation Gauge (USFIG), designed to anticipate cyclical swings in the rate of inflation, rose to 117.9 from December's 117.4, revised upward from 117.1.

"Despite the slight uptick, the USFIG remains close to December's 31-month low, suggesting that U.S. inflation pressures are still subdued," said Lakshman Achuthan, managing director at ECRI.

The gauge's annualized growth rate, which smooths out monthly fluctuations, rose to minus 3.0 percent from minus 4.4 in December, revised from negative 4.6.

(Reporting by Rodrigo Campos; Editing by James Dalgleish)

[HenryTo]

FYI - hot off the press from the ECRI:
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3-August-2007

NEW YORK, Aug 3 (Reuters) - U.S. inflation pressures edged up in July due mainly to inflationary moves in measures of commodity prices, vendor performance and interest rates, a report by a research group said on Friday.

The Economic Cycle Research Institute's U.S. Future Inflation Gauge, designed to anticipate cyclical swings in the rate of inflation, rose to 119.3 in July from an upwardly revised 118.3 in June, originally reported as 117.8.

"Despite its latest uptick, the (gauge) remains in a cyclical downswing, suggesting that cyclical inflation concerns are premature," said ECRI managing director Lakshman Achuthan.

The index's rise was partly offset by disinflationary moves in measures of jobs and real estate loans, the report said.

The gauge's annualized growth rate, which smooths out monthly fluctuations, increased to minus 1.7 percent from minus 3.8 percent in June, revised from negative 4.2 percent.

[HenryTo]

FYI - straight from the ECRI:
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US May inflation pressures near 2-year low - ECRI
Fri Jun 1, 2007 11:10AM EDT

NEW YORK, June 1 (Reuters) - U.S. inflation pressures fell in May close to a two-year low due mainly to disinflationary moves in measures of interest rates and loans, marginally offset by an inflationary move in a measure of vendor performance, a report said on Friday.

The Economic Cycle Research Institute's U.S. Future Inflation Gauge (FIG), designed to anticipate cyclical swings in the rate of inflation, fell to 118.2 in May from 118.7 in April, revised upward from 116.6. The previous low was at 117.5 in June 2005.

"With the U.S. FIG in a sustained cyclical downtrend, U.S. inflation is not a serious concern at this time," said Lakshman Achuthan, managing director at ECRI.

The index's annualized growth rate, which smooths out monthly fluctuations, dropped to minus 3.8 percent in May from minus 3.4 percent in April, revised from negative 5.7.

[HenryTo]

Annual ROC for the FIG for April 2007 is -5.7%. Absolute level at 116.6, which is the absolute reading since May 2005.

The ECRI Future Inflation Gauge is now calling for a significant deceleration in the headline inflation numbers over the next three to six months.

[HenryTo]

Annual ROC for the FIG for November is -3.4%. Absolute level at 119.4 (which is meaningless unless you look at a year-over-year comparison).

Last month's ROC revised to -5.1%. Absolute level revised to 118.8.

[HenryTo]

First of all, the September annual rate of change was revised from -3.4 to -1.4. The absolute level of the FIG was revised to 121.6

But the good news is that the October number is significantly lower. The annual ROC for the ECRI FIG for October is -3.7. The absolute level hit 119.9 - which is the lowest level since June 2005.

[HenryTo]

Latest September growth rate: -3.4%

Absolute level in the ECRI Future Inflation Gauge is 120.3 - the lowest level since July 2005. I think we are now out of the woods.

[rffrydr]

We're now fully on the other side of the Katrina Effect. If you consider weakening wages good the numbers should get better and better.

Weakness is popping it's head out in all the major economies--except China. Unless the numbers in China.....

[HenryTo]

Latest August reading of the ECRI Future Inflation Gauge: -0.7%.

Negative reading for the first time since June 2005. CPI Inflation should continue to subside in the coming months.