Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
US Bond Market Yield Curve Patterns – What To Expect In 2020 - 25th Feb 20
Has Stock Market Waterfall Event Started Or A Buying Opportunity? - 25th Feb 20
Coronavirus IN Sheffield! Royal Hallamshire Hospital treating 2 infected Patients, UK - 25th Feb 20
Dow Short-term Trend Analysis - Coronavirus Trigger a Stocks Bear Market? - 24th Feb 20
Sustained Silver Rally Coming? - 24th Feb 20
Should Investors Worry about Repo Market and Buy Gold? - 24th Feb 20
Are FANG Technology Stocks Setting Up For A Market Crash? - 24th Feb 20
Gold Above $1,600 Amid FOMC Minutes and Coronavirus Impact - 24th Feb 20
CoronaVirus Pandemic Day 76 Trend Forecast Update - Infected 540k, Minus China 1715, Deaths 4920 - 23rd Feb 20 -
Ways to Find Startup Capital - 23rd Feb 20
Stock Market Deviation from Overall Outlook for 2020 - 22nd Feb 20
The Shanghai Composite and Coronavirus: A Revealing Perspective - 22nd Feb 20
Baltic Dry, Copper, Oil, Tech and China Continue Call for Stock Market Crash Soon - 22nd Feb 20
Gold Warning – This is Not a Buying Opportunity - 22nd Feb 20
Is The Technology Sector FANG Stocks Setting Up For A Market Crash? - 22nd Feb 20
Coronavirus China Infection Statistics Analysis, Probability Forecasts 1/2 Million Infected - 21st Feb 20
Is Crude Oil Firmly on the Upswing Now? - 20th Feb 20
What Can Stop the Stocks Bull – Or At Least, Make It Pause? - 20th Feb 20
Trump and Economic News That Drive Gold, Not Just Coronavirus - 20th Feb 20
Coronavirus COVID19 UK Infection Prevention, Boosting Immune Systems, Birmingham, Sheffield - 20th Feb 20
Silver’s Valuable Insights Into the Upcoming PMs Rally - 20th Feb 20
Coronavirus Coming Storm Act Now to Protect Yourselves and Family to Survive COVID-19 Pandemic - 19th Feb 20
Future Silver Prices Will Shock People, and They’ll Kick Themselves for Not Buying Under $20… - 19th Feb 20
What Alexis Kennedy Learned from Launching Cultist Simulator - 19th Feb 20
Stock Market Potential Short-term top - 18th Feb 20
Coronavirus Fourth Turning - No One Gets Out Of Here Alive! - 18th Feb 20
The Stocks Hit Worst From the Coronavirus - 18th Feb 20
Tips on Pest Control: How to Prevent Pests and Rodents - 18th Feb 20
Buying a Custom Built Gaming PC From Overclockers.co.uk - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

U.S. Inflation Setup to Upset

Economics / Inflation Nov 18, 2015 - 03:56 PM GMT

By: Ned_W_Schmidt

Economics

Is U.S. inflation setup to upset the markets? Motivation for considering this question begins with graph to right. Plotted in that chart is the year-to-year percentage change for the median U.S. CPI. That measure is calculated monthly by the diligent elves at Federal Reserve Bank of Cleveland. Period of time for chart is past ten years.


Let us start with some casual observations. First, U.S. inflation as measured by year-to-year percentage change of the median CPI has not been negative anytime in the past decade. Second, only one major cycle of lower inflation occurred during this period. Third, and perhaps most important, the measure has now exceeded the last high which occurred at the end of 2011. As indicated by the red line, this measure of inflation is at the highest level since the beginning of 2009.

What is the median CPI? To calculate the headline CPI for any particular month the rate of change is calculated for each of the components of the CPI such as energy, food, and housing. The headline CPI is then calculated by weighting each of those component. It is what is called a weighted average. The median CPI is that rate of change for which half of the components had a higher rate of change and half had a lower rate of change. The median is less impacted by extreme changes in the prices for any component which can in someways distort the weighted average CPI.

As shown in bottom chart, three times the year-to-year percentage change for the headline CPI, black line, has been below that for the median CPI, red line. In each of those cases it spiked lower. Both of the first two times the headline rate for the CPI then moved sharply higher, as highlighted by blue arrows. That divergence below the median CPI by the headline CPI suggests an unstable situation which is corrected by a rise in the headline CPI.

On the right side of the graph the headline CPI has been running below the median CPI for some time and has again spiked lower on the collapse of oil prices. Picture is much like that which occurred in the first two inflation events. This situation suggests that soon the headline CPI could begin rising at a much faster rate, just as it did twice before.

How high might the rate of U.S. inflation as measured by the headline CPI go? In the first inflation event in the graph inflation rose, using rough numbers, from 1.5% to 5.5%, or by 4 percentage points. In the second inflation event, again using rough numbers, the CPI rate of change initially rose from -2% to more that +2%, or again by about 4 percentage points.

Using those simplistic numbers suggests that U.S. inflation as measured by the CPI could rise to an annual rate of about 4% as indicated by the green arrow. Such a development is likely not part of the thinking of either financial market participants or the central bank. Despite the rough nature of this approximation, U.S. inflation also has the potential to move above the previous high which would portray a picture of a rising inflation trend. This situation seems to be a setup that could potentially upset financial markets.

By Ned W Schmidt CFA, CEBS

Ned W. Schmidt,CFA has had for decades a mission to save investors from the regular financial crises created by economists and politicians. He is publisher of The Value View Gold Report, monthly, with companion Trading Thoughts. To receive these reports, go to: www.valueviewgoldreport.com Follow us @vvgoldreport

Copyright © 2015 Ned W. Schmidt - All Rights Reserved

Ned W Schmidt Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules