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2022-06-11 CPI @8.6%



Equity market continued to crash after CPI report came out on Friday.

1. CPI @8.6%, highest in 40 years

2. Increase is broad based

3. Core CPI 0.6% from prev month, 6% from a year ago, above forecast

4. Shelter, food and gas were the largest contributors

5. Prices for necessities, double digits

6. Energy, 34.6%

7. Grocery, 11.9%, most since 1979

8. Electricity, 12%, most since 2006

9. Rent of primary of residence, 5.2%, most since 1987

10. Airfares, 12.6%

11. Hotels, 22.2%

12. Shelter cost, 1/3 of CPI index, up 0.6% from April, 5.5% from last year, most since 1991

13. Used car, 1.8% in May

14. Growing risks:

    1. Russia/Ukraine war, stepped-up related sanctions

    2. Potential port disruption due to upcoming West Coast dockworker contract expiration

    3. Covid-related lockdowns in China

    4. Food crisis

15. Inflation adjusted hourly earnings fell 3%

    1. 14th straight decline

16. So far:

    1. Consumer spending held firm, supported by savings and credit cards

衡量价格变动的指标有很多种，各有优劣。



Indicators

1. Consumption Expenditures Price Index

2. Producer Prices

   1. Wholesale level, no cost of most services

3. Import Prices

4. Employment Cost Index

5. Unit Labor Costs

6. GDP Deflator

   1. Much broader range than CPI

   2. Only quarterly, while CPI is published monthly

7. Consumer Price Index (CPI)

   1. Seek to gauge cost of living

   2. Average change in retail prices over time for a basket consisting of more than 200 categories of assorted goods and services

CPI Weights

1. https://www.bls.gov/cpi/tables/relative-importance/2021.htm

How does inflation started?

1. Money supply

   1. Excessive growth in money supply

2. Demand for goods and services (Keynesian view)

   1. Shortage in supply causes inflation to accelerate

   2. Depend upon business cycle

3. Is it bad?

   1. Good:

      • Higher price, more revenue, higher stock prices, richer investors, more tax revenue

      • Balanced fed budget, new gov spending projects

      • Large borrows pay back with cheaper dollars

   2. Bad:

      • Instability/uncertainty

      • Higher input cost/price elasticity

      • Higher wage

      • Eroding purchasing power

   3. Deflation can be as destructive

   4. 2% target

How is it computed:

1. First 3 weeks:

   1. Check out stores, conduct telephone interviews

      • 26000 retail outlets and other businesses

      • 4000 housing units

      • 87 urban areas

      • 80K items and services

   2. Same price, lower quantity?

      • Inflation!

2. Collect data, adjust seasonal factors

   1. Price of orange higher in winter

3. CPI-U v.s. CPI-W?

   1. The CPI-U is a more general index

      • Seeks to track retail prices as they affect all urban consumers.

      • About 87 percent of U.S. population.

   2. The CPI-W is a more specialized index

      • Seeks to track retail prices as they affect urban hourly wage earners and clerical workers.

      • 32 percent of U.S. population and is a subset of the CPI-U group.

   3. The CPI-W places a slightly higher weight on food, apparel, transportation, and other goods and services.

      • A slightly lower weight on housing, medical care, and recreation.

Uses:

1. Businesses to anticipate costs ahead of time

2. Money managers reassesss investment strategies

3. Pay terms

4. Lagging indicator

   1. Price increases start to easy after a recession is well under way, not accelerate again until a year or more after recovery has begun

   2. No real value as a predictor of turning points in the economy

1. All items

   1. Monthly %ge change in CPI for all items

2. Core-CPI

   1. CPI with food/energy costs excluded

      • Food/energe

        • 25% of CPI

        • Bouncing around m/m due to temporary factors

        • Fed v.s. Comsumer (indespensable)

3. Change in CPI trend

   1. Annualized 3/6/12m %ge change in inflation

4. Medical care

   1. One of the biggest expenses for companies paying for employee healthcare coverages

5. Personal computers and peripheral equipment