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Spending and Inflation

April 15, 2011 – 5:51 pm

The PPI and CPI for March came in over the last two days. Both numbers were a little less than expected hinting that inflation is still well contained but rising. Year over year inflation is running at 2.7% which is much higher than at the end of last year but still very low. Both CPI and PPI core rate of inflation rose .1%. Of course you and I saw, for the things we buy, higher prices. That is because the core rate does not include gasoline prices. The problem with inflation is that wages are not keeping up. Wages once adjusted for inflation actually fell slightly. That is a reason that inflation will not spin out of control as there will be a lot of pressure for companies to ‘not’ pass along their costs because consumers can’t afford it. I am not suggesting there won’t be inflation, just not out of control inflation. That happens when both wage and consumer goods rise and we get into a cycle of rising wages and a subsequent rise in goods’ prices.

Out this morning was the mid-month report for consumer sentiment from the University of Michigan. It rose to 69.6, up a couple points from March but still below the 70 number it was a couple months ago. You shouldn’t
put too much into this report as the consumer changes how they feel for a lot of reasons and the report does not reflect necessarily what the consumer actually spends. Retail sales this week showed an increase of .4%. Spending habits are much more important than how consumers feel. Of course there is a relationship but just not a very good one.

Good Trading
Steve Peasley

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