The Bureau of Labor Statistics (BLS) released the September inflation numbers on October 22nd and inflation is lower for the fourth month in a row. Annual inflation in May was 2.13% in June it was down to 2.07% (although the BLS rounded both to 2.1%). In July inflation fell to 1.99% and in August it was down to 1.70% and in September it was 1.66%. Once again the BLS rounded both August and September to 1.7%.
The last few months are a perfect reason why it is important to use our two decimal place inflation calculations. So although we have seen a steady decline, using the BLS numbers you would see 2.1%, 2.1%, 2.0%, 1.7%, 1.7% and so the decline is not so obvious. As the inflation rate falls this is “disinflation” on an annual basis although July and August were “deflationary” on a monthly basis, i.e. each monthly number was below zero at -0.04% and -0.17% respectively.
Our Moore Inflation Predictor (MIP) is generally quite accurate. Last month we predicted a slight decrease in inflation for September in the range of 1.52% to 1.64% with the actual inflation rate turning out to be 1.66%. This month’s MIP is projecting that inflation will be down for October with a downward bias through June 2015. See the full commentary and the current chart here.
Here is a sample of how well the MIP performed. This chart is the projection from December 2013 with the blue reality line extended through September.
As you can see the blue line tracks the most likely line for several months and then moves to the high side before returning to the center.
In our Current Annual Inflation Commentary we include the following chart:
Annual inflation for the 12 months ending in September 2014 was 1.66%. This is down slightly from 1.70% in August, 1.99% in July, 2.07% in June and 2.13% in May .
This month we’ve added a 2% dotted line to the chart to signify the FED “target”. According to policy the FED is targeting a 2% inflation rate. As we can see from the chart over the last 25 years they have come close to the target a total of 6 times out of more than 300. If we count all the times they crossed the target or even got close we get a total of maybe 25 total. Or about 8% of the the time. Not an exceptionally good track record.
Overall energy on a “seasonally adjusted” basis was down -0.7% for the month and -0.6% on an unadjusted basis for the entire year. Fuel oil fell -2.1% for the month (adjusted). On an annual basis electricity rose 2.8% but on a monthly basis it fell -0.7%. Gasoline fell -1.0% and Natural gas rose 1.6% for the month.
There are signs of a possible new top in Real Estate see: Another Housing Bust On The Way?
And a major economic factor on the horizon is the Death of the Petrodollar and an interesting article by John Mauldin called Inflation or Deflation? – Yes which looks at how the Velocity of Money is leading to deflation.
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