The tendency to ex-out everything that goes up reached a new low Thursday, as reflected in this passage from Market News International: Had tobacco been flat, the core rate would have been 0.2 percent, senior BLS analyst Patrick Jackman told Market News International as the CPI report was being made public.
Without the accompanying large increase in shelter costs, up 0.5 percent, the core would have been near motionless, since shelter costs make up about 40 percent of the core rate.
Without shelter? Without the biggest single component? My friend Jim Bianco, president of Bianco Research in Barrington, Illinois, has aptly coined the phrase, "pro forma" CPI, to deal with this nonsense.
"I've never heard anyone say, if you exclude the things going down the CPI would have been worse," Bianco says.
New car prices declined 0.9 percent in February, the biggest drop in 15 years. Given the strength in auto sales, are declines of that magnitude likely to be repeated? What about energy prices, which fell 0.8 percent in February and almost 16 percent in the last 12 months? The average price of a gallon of unleaded gasoline rose 15 percent from US$1.12 in the last week of February to US$1.29 in the third week of March. The price of crude oil, from which gasoline is distilled, is up 14 percent this month.
Most economists expect core inflation, up 2.6 percent in the last year, to fall this year. The TIPS market suggests just the opposite. The difference between the yield on the 10-year Treasury inflation protection security and the nominal 10-year note has moved out by 50 basis points in the last two months to 202 basis points.
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