Thursday, February 17, 2011

January Consumer Price Inflation Above Keynesian Expectations

With the most serious consumer price inflation is still ahead of us, Keynesian forecasts missed even the mild price hikes of January.

U.S. core consumer prices rose at their quickest pace in more than a year in January, but are still relatively mild compared to what we could be facing by mid-2011.
The Labor Department said the Nixon-designed core Consumer Price Index, which excludes food and energy, increased 0.2 percent -- the largest gain since October 2009 -- after rising 0.1 percent in December.

The increase was above Keynesian economists' expectations of a 0.1 percent gain. The gain was driven by rises in the cost of apparel, shelter and airline fares.

Overall CPI rose 0.4 percent after increasing by the same margin in December. Food and energy accounted for over two-thirds of the rise in overall CPI. Keynesian economists had expected headline CPI to rise 0.3 percent last month.

Over the last 12 months, the gasoline index is up 13.4 percent, according to the BLS. Since gasoline is used by both the capital goods sector and the consumer sector, it should come as no surprise that gasoline tends to lead price climbs. When the Fed prints money, it tends to go into the capital goods sector, which causes capital goods users to bid gasoline away from the consumer sector.When the money ends up back in the hands of consumers, they bid the gasoline away from capital goods users, who then need more Fed printed money to bid higher than the new consumer bidding.

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