MIT "Billion Price Project" Confirms US Prices Surging (In Case There Was Any Confusion)

Tyler Durden's picture

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butthead's picture

I was not confused as I know that the #1 job of the US gov't today is to lie to the sheeple.

unwashedmass's picture

none of this matters a bit because Ben literally does not give a shit. he is right, reality is wrong....

and this country is going to be in flames before he admits it....

not that that will matter as he and the entire upper tier of management from the big six banks will be long gone, nicely situated on their private islands with their own private militias.

nope-1004's picture

What's clear on those charts is the deflationary spiral that spurred Benocide into action prior to QE1.

 

PeterSchump's picture

...and that deflationary spiral ended when? 12/2008

 

and QE started when? Nevermind

More Critical Thinking Wanted's picture

...and that deflationary spiral ended when? 12/2008

Well, what matters to "hard to get rid of (sticky) inflation/deflation" is core CPI, not CPI:

http://lh5.ggpht.com/_VgJQTp0Bsf0/TUgwIeY_oPI/AAAAAAAAAIo/ojOzqCOCthk/un...

See how core CPI clearly showed that there was inflation trouble in the 70s? See how it filtered out several large swings in commodities prices that were temporary and which needed no Fed response?

Why do people here still pretend that the Fed is watching CPI? The Fed is watching core CPI and is doing it for good reasons:

http://krugman.blogs.nytimes.com/2010/12/06/core-logic-still/

Core CPI was trending lower prior QE2 and inflation was stubbornly low - just like it did in Japan before deflation hit full force ...

All in one, to me the two graphs are in pretty good agreement - considering the wildly different methodology and composition! The CPI will also lag a bit - while the MIT price index is instantaneous - so you can see this lag in the charts.

So what this tells me is that the next CPI reading might show a big uptick.

Looks like the MIT price index has validated CPI and is predicting that QE2 worked?

 

ColonelCooper's picture

If you are correct about lag time, then of course it will show a big uptick.  You think the Mit index is going to level out?  I'll bet you a Coke it doesn't.

If by QE2 working you mean stopping deflation, then sure.  But you think we can just end it and coast?  We're playing the Yodeling Mountain Climber game on Price is Right, and we aren't quitting until we fall off the top.

More Critical Thinking Wanted's picture

 

If you are correct about lag time, then of course it will show a big uptick. 

Well, I don't have the data series to analyze it precisely, but if you do a quick and dirty analysis of the graph you can match up the various peaks and bottoms and notice a pattern of CPI being shifted by about a month from the MIT data's peaks and bottoms.

If you consider that the CPI is an weighted average based on reporting, averaged over the reporting period (a month), while the MIT data is raw, instant price data uncut straight from live trade transactions on the Internet, the roughly one month delay visible kind of makes sense, doesn't it?

If that observation is correct then the uptick in the MIT data suggests that the next readings of CPI will show an uptick as well.

You think the Mit index is going to level out?  I'll bet you a Coke it doesn't.

I have bet more than a Coke that it won't :-)

But note that this has no necessary link to deflation risks: while the next 'total CPI' data will almost certainly show an uptick, the next core CPI readings may or may not show an improvement. The MIT data does not show the 'core MIT' component so it's hard to tell just from the graph linked in this article.

Why no flattening in 'total CPI'? If you check the historic long-term CPI graph I linked to then you'll see that supply & demand bottlenecks in commodities need at least 1-2 years to play out: it takes time to increase supply and it takes time to reduce demand. It's slow, messy, physical, real-life processes, not speculative financial movements that will calm down in a few weeks or months.

The large CPI upswings are followed by large downswings - the core CPI readings generally hardly notice these swings.

This time it might take even more time: 'reducing demand' for food is particularly hard ... humans tend to rest the market option of 'death from starvation'.

Further, with the solar cycle revving up again:

http://www.climate4you.com/images/TSI%20LASP%20Since2003.gif

and with the upcoming solar cycle top combined with baseline global warming that the record 2010 heat has shown it does not look good for improved grain harvests and increasing food supply ...

If by QE2 working you mean stopping deflation, then sure.

IMO it's not 'sure' but 'maybe'. Deflation is 'core CPI' not 'CPI', i.e. the slowly downwards trending red line in this graph:

http://lh5.ggpht.com/_VgJQTp0Bsf0/TUgwIeY_oPI/AAAAAAAAAIo/ojOzqCOCthk/un...

does not necessarily follow from an uptick in CPI (or an uptick in the MIT data).

I find the perpetual confusion between core CPI and CPI here on ZH quite unproductive: their separate meaning is well established - why does ZH continue to report that they are one and the same thing?

If the uptick in the ('total CPI' equivalent) MIT data was mostly due to food and energy then core CPI wont stop trending down. If on the other hand deeper changes have taken place and the labor market (and wages) start improving and 'stickier' prices start moving up as well, then deflation might be less of a risk.

But you think we can just end it and coast?  We're playing the Yodeling Mountain Climber game on Price is Right, and we aren't quitting until we fall off the top.

Whether it's Japanese-style two decades deflation is literally a life and death matter for a lost generation:

http://projects.flowingdata.com/images/0730suicide-epidemic.png

http://en.wikipedia.org/wiki/En/wiki/Suicide_in_Japan

With 40% (!) youth unemployment in today's deflating Spain it's a very direct problem IMO.

Note that the QE exit strategy for the Fed is not particularly hard. It is a commonly held belief that the Fed has 'printed trillions' but it's wrong: what it has done it has taken up long-term government debt and allowed the government to convert it to shorter maturities in essence. The natural 'exit strategy' is for the Fed to let those 3-5 year bonds mature - that removes the (QE2) liquidity gradually and automatically. Then the Fed can raise rates, if it wants to.

If you check how the Great Depression played out (we have no other example of US deflation so we've got to analyze that old example) you'll see that for many years the Fed was trapped in ZIRP. It has increased rates in 1937 but that was still too early. So it can take quite some while - but it's not necessarily a period of time without prosperity - the second half of the 1930s was rather productive.

What would be really nice if the MIT people tried to create a 'core MIT' price index - and compared it with the core CPI data.

 

RockyRacoon's picture

Krugman again?  You know, I don't recall ever seeing you two in the same place at the same time.   Are you lurking on ZH, Paul?  Come on, fess up.

ColonelCooper's picture

He can't be Paul.  Paul would never stoop so low as to talk with the likes of me. 

More Critical Thinking Wanted's picture

 

At least on his blog Krugman appears to be quite approachable. But yeah, the comment influx on his blog is huge, so I guess he cannot spend all day answering them.

He sometimes does pick out individual comments and answers them in upcoming blog posts though.

But I don't know him in person - maybe he is a douchebag. He does not give me that impression in his public communications, while some other public figures like Palin, McCain or (Mrs) Clinton definitely give me that impression: the deep rooted dishonesty in their personalities shines through all their communication attempts to seem approachable.

But it's really hard to tell - one of the strongest traits of sociopaths is to seem compassionate and approachable. Why do you think we have so many compassionate looking politicians? Why do you think is affinity fraud one of the most common starting steps of ponzi schemes?

(OTOH, Krugman specifically criticises and exposes the hypocracy of his own class - not the typical sociopathic pattern of behavior.)

 

The Profit Prophet's picture

Krugman is definitely making the ZH rounds, however, I will need more observations of Mr. Steroid Thinker before officially supporting Rocky's call.....although it's looks very promising based on the writing style and depth of premise contained within the posts.

As evidence of his presence, I provide the following testimony:

A few weeks back I was involved in a back and forth with Cog. Dis. about the inherent nature of Mr. K - when I floated the question of whether Mr. K is in fact "evil" (for using his power and influence to promote a bastardized and highly destructive form of Keynesianism in order to help bring about a Globalist agenda), or was he just too "stupid" to understand  the end game of this practice.  CD replied that he believed Krugman to be a self-interested pawn of the Elite - a premise that Krugman himself would not be able to refute if he was in fact so influenced/entombed.

So here's the crux:  A few days after this banter, Krugman was quoted in an interview in response to a question about his ideology: "Well..I'm pretty sure that I'm not stupid, so I guess that makes me evil"!!!

Coincidence???......I think not!     

 

meizu's picture

because formula for core CPI was changed

 

also, it proves that there is no such thing as deflationary spiral because the government can instant reverse price deflation and cause price inflation if it wants to; so even as the government inflates prices, the real estate market continues to collapse and unemploment remains high; During the japanese deflation, the CPI never dropped significantly even as seet values tanked

More Critical Thinking Wanted's picture

 

because formula for core CPI was changed

It is true that in January 1983 housing prices in the CPI basket were replaced with "owners' equivalent of rent" because rents are more stable metrics of real housing costs. (Housing prices include a lot of speculative/asset prices.)

Note, if we undid that change of the CPI formula and re-ran the numbers then the current rock-bottom housing prices would be showing an even more deflationary core CPI reading.

So yes, the formula was changed, but I do not see how that change supports your position, it actually undermines your argument.

In hindsight it was good that the CPI change was done: this way core CPI did not over-estimate the deflationary effects of housing.

Regarding other changes to the CPI formula, current estimations are that they affected the results by less than 0.3%. Here's a (lengthy ...) analysis of the various changes:

http://www.bls.gov/opub/mlr/2008/08/art1full.pdf

(If you do not trust the analysis BLS you can double check the changes yourself - you'll see that beyond the housing change most of the changes are benign and served the purpose to stabilize (improve the reliability of) the index and to remove sources of systematic skew.)

But IMO the best 'intuitive' evaluation is to go look at all the historic CPI readings yourself:

http://lh5.ggpht.com/_VgJQTp0Bsf0/TUgwIeY_oPI/AAAAAAAAAIo/ojOzqCOCthk/un...

Do you really believe that there was more than 10% of headline inflation in 2008?

Do the frequent 10%+ readings throughout history really tell you that the government is trying to hide inflation?

 

rosiescenario's picture

...and QE started after Jackson Hole....Ben was quite taken with the Grand Tetons....looking at their soaring profile gave him an epiphany of sorts, "I wonder if I could ramp the stock market to similar heights?"

Zero Govt's picture

What does the CPI, and BPP figures, actually show you guys?

Does it show you liquidity in the system? Does it show you the footprints of the Fed? Does it show you Bernanke magician-like conjuring the retail index? No. Doh!!

The only friggin thing the CPI and BPP figures show you is retailers adjusting prices. It show's you PRICING POWER. What retailers can price a basket of goods in the retail market, how much they can get away with.

Further it shows you a 5 Oz bag of peanuts has gone up say 5% but it does not show you volume, that consumers might switch to a cheaper (deflationary) range of 'on sale' Brazil nuts.

Don't look at the CPI to gauge inflation/deflation. Look at major retailers. Wal-Mart etc are struggling, their sales are contracting (deflation) and profit margins are being squeezed (deflation) and their share prices are heading downhill because the real pricing pressure is deflationary, its Dog-eat-Dog out there and getting more competitive by the month.

Every Dollar in your pocket is going ever further. Once the Commods' come off their tops it'll be even more obvious all asset classes are deflating along with economic activity. As I've said before you want inflation, you've HAD inflation for 25 years. Game Over. Get ready for deflation like you wouldn't believe!!!

Withdrawn Sanction's picture

Let's be clear here, that chart shows a (modest) 3% or so decline in the MPP price level during 2008.  Hardly a deflationary spiral.

BB doesn't give a damn about goods price deflation (or inflation...as his callous remarks about Egyptian unrest make clear).  The only thing he cares about is bank financial assets' price deflation.  He can impede that BFA deflationary process and in so doing make it that much worse.  He cannot, however, stop it.

More Critical Thinking Wanted's picture

The article is missing the point (by ignorance or intentionally), it is confusing "CPI" with "core CPI". In the CPI graph you cannot see the deflationary trend that the Fed got worried about.

Here's a graph of both CPI and "core CPI":

http://lh5.ggpht.com/_VgJQTp0Bsf0/TUgwIeY_oPI/AAAAAAAAAIo/ojOzqCOCthk/un...

See the red line trending dangerously low in mid 2010, and unprecedented low reading of core CPI values?

That is what got Bernanke worried that the US is facing Japanese style deflation.

Core CPI was not worrisome during 2008 when CPI rose and dropped quickly.

See more here:

http://www.zerohedge.com/article/mit-billion-price-project-confirms-us-p...

 

silver_serf's picture

Dude we come to ZH because we don't like propaganda...

meizu's picture

yet he was able to instantly reverse the modest deflation in prices and send the stock market up 60% in 2 years but still can't stop the collapse of asset prices

mark mchugh's picture

You're retarded, and not just because you link to Krugman.

Remember $147 oil? which became $33 oil a couple months later?

Go pull up a few dozen 5-year commodity charts (corn, oil wheat cotton etc.), most are in major, long term uptrends signaling a serious inflation problem......except for the six month period between june and December of '08 (the deflation scare).  The most blatant example of orchestrated manipulation the world may ever see.

Just 'cause you whizzed yourself, that doesn't mean that deflation was ever a real concern.

Zero Govt's picture

"deflation not ever a real concern" ....what are you, an academic? When your house drops 30% is that not a real deflationary concern?

We all think about economics in some detached national academic economist stylee. We're almost as deluded as academia and the public sector itself, some fuking fantasy land. It's about time we stopped and dealt with economics as it effects us which is in fact precisely how it works.

When your house is losing value, your pensions have lost 20%, you can't sell your car because buyers are drying up and you're worried about job security because 2 families on your street have lost theirs, that's economics 101. Not this Fed and economist BS about M2 and QE2.

So carrots, wheat and pork bellies are up 20%... big deal. When your house, car and pension is down 20% (big ticket items) deflation is hitting you far harder than small ticket items like food and the price of petrol. Deflation is 'winning' the argument, in fact it's overwhelming the debate if you deal with reality and not this academic nonsense on what's happening on the NY SE 

 

mark mchugh's picture

Carrots wheat and pork bellies being up 20% is a big deal!!

What you observe as "deflation" is the result of millions of people who don't understand the impact of interest rates on leveraged assets.  Here's something you haven't figured out yet:  Houses, like cars are depreciating assets - their value doesn't keep up with inflation.  Never did.  You've come to all the wrong conclusions, because you ignore the impact of 30 years of ever-lower interest rates.

What's worse is that these ignoramuses see no problem with starving others to keep their McMansions that they bought with no money down from going underwater.

I hope to God you're a paid government shill. 

More Critical Thinking Wanted's picture

 

I hope to God you're a paid government shill.

Why does anyone who disagrees with the far-right crazies get instantly accused of being a 'government shill'? Do you guys never disagree between yourselves, do you never engage in critical thinking? Is it an act of war against your faith if someone questions your views?

Deflation is not just some natural process. It's a rare but very destructive economic phenomenon that is literally killing people:

http://projects.flowingdata.com/images/0730suicide-epidemic.png
http://en.wikipedia.org/wiki/En/wiki/Suicide_in_Japan

More than 7 million Americans died due to effects of malnutrition during the Great Depression.

US youth unemployment is already showing very worrying patterns in the US.

If you think that deflation is 'just natural', if you think this should just happen without doing anything against it then your must be a heartless, greedy sociopath.

 

silver_serf's picture

and that would have been bad ? (deflation)  Main street is still deflating..we just get double screwed from QE...see food stamp usage charts

Michael's picture

The results of global cooling are coming in;

"Houston - The cold weather experienced across much of the US in early February made its way deep into Mexico and early reports estimate 80-100 percent crop losses which are having an immediate impact on prices at US grocery stores with more volatility to come.

Wholesale food suppliers have already sent notices to supermarket retailers describing the produce losses in Mexico and the impact shoppers can expect. Sysco sent out a release(pdf) this week stating the early February freeze reached as far south as Los Mochis and south of Culiacan, both located in the state of Sinaloa, along the Gulf of California. The freezing temperatures were the worst the region has seen since 1957."

According to Sysco’s notice sent out this week:
“The early reports are still coming in but most are showing losses of crops in the range of 80 to 100%. Even shade house product was hit by the extremely cold temps. It will take 7-10 days to have a clearer picture frome growers and field supervisors, but these growing regions haven’t had cold like this in over half a century.”

“Supplies of tomatoes, peppers, cucumbers and other vegetables from Mexico will be severely limited until at least March following an early February freeze.”

Jerry Wagner, sales and marketing director for Farmer’s Best, based in Nogales, AZ, said: “The end of February and the first half of March, there will be even worse shortages of product” than during the first part of February, The Packer reports.
Wagner called it “a miracle” if 20 percent of the cucumber crop survives. Yellow, green and grey squash took the biggest hit. “Some plants will come back but the vast majority is lost,” Wagner added.

Sysco called the Mexico freeze an “unprecedented disaster” and noted the volatility of the matter in its release:
“With the series of weather disasters that has occurred in both of these major growing areas we will experience immediate volatile prices, expected limited availability, and mediocre quality at best.”
http://www.digitaljournal.com/article/303583

slackrabbit's picture

Cool...then we all get to play 'FarCry' and 'Just Cause' for real....I bags the sniper rifle and the rocket launcher!!

 

serotonindumptruck's picture

"...nicely situated on their private islands..."

That would be fine with me. Hopefully, the Earth will suffer an event known as pole shift sometime in the next 24 months. The seismic effects should include massive global tsunami, so those bankers won't be cozy for long.

ShankyS's picture

And just like the last two bubbles - no one could have predicted it or "could have seen it coming".

Sudden Debt's picture

Like the Great dictator Mussolini once said:

"Every great conspiracy only holds for 12 years"

 

we'll see...

Triggernometry's picture

The lie can be maintained only for such time as the State can shield the people from the political, economic and/or military consequences of the lie. It thus becomes vitally important for the State to use all of its powers to repress dissent, for the truth is the mortal enemy of the lie, and thus by extension, the truth becomes the greatest enemy of the State." 
 

-- Dr. Joseph Goebbels, Nazi Propaganda Minister

MonsterZero's picture

Zzzzzz let's see a 50 year inflation chart, this 3 year time frame junk is pointless.

Tyler Durden's picture

Considering QE1 started at the very bottom of that chart, some would disagree completely.

packman's picture

Since pretty much every popular gauge uses annual rates of inflation - seems like a chart presenting the data in that form would be appropriate.  There's a chart of that on their page, seems like it should posted also.

MonsterZero - it's not feasible to post a 50-year chart - they just started collecting this data less than 3 years ago.

 

Fred Hayek's picture

Apparently, he was buying stuff on the internet in JFK's administration.

slewie the pi-rat's picture

 

no way, eminem, too good looking

hedgeless_horseman's picture

What I could really use is a daily chart of expectations of inflation.

dark pools of soros's picture

you mean they cant go to all those dusty file cabinets, pre-internet, and give him what he wants???

Haywood Jablowme's picture

no, because it all burnt down with the word trade center buildings :)

 

 

Assetman's picture

Actually, the chart gives the benefit of a period of nasty deflation in 2008, that we all pretty much knew existed at the time.

It would have been interesting to compare the MIT broader price index to CPI as prices were ramping into the 2007-08 period.

You know, before we hit the proverbial wall... much the way we appear to be doing now.

Except that GenBen has had us on emergency-like QE and ZIRP for almost 24 months, as opposed to the 5% rates we were seeing at the short end in 2007.

Sudden Debt's picture

8% since Q1 started sounds about right.

 

RockyRacoon's picture

Regardless of past performance, as the saying goes, we are now experiencing price inflation.   This is where the Fed misses the boat.   They always get to this point on any bubble and then go into denial mode.   We are at the critical point where the direction needs to change -- it never has, and it won't now.  Pity.

MonsterZero's picture

It's like RoboTrader posting his stock quotes with a 30 minute run and calling it a trend.  Are these inflation levels something we haven't seen before?  not even close.

jus_lite_reading's picture

HOMEWORK for Tyler Durden-

Try and calculate what percentage of the average middle class American's income is spent on food and fuel. My rough estimates are showing 32-38% of total income (15-17% on fuel + 17%-21% on food = 32% min)

And then, please spread the word. Get your ass on Oprah or Dr. Phil and tell AMERICA! NOW!

jus_lite_reading's picture

Did you see a silver chart? Gold?

Silver to $45 in a month. There is no way around it. Get back in your hole.

Cash_is_Trash's picture

You mean to tell me that rising asset prices is not a source of wealth???

I have been lied to by my college professors!

I am appalled and want my tuition back with interest, even though the rate is ZIRP.

(!)

jus_lite_reading's picture

As I said, every man is a Trillionaire, with a castle and a duck in his plate. Win win.

ToddGak's picture

Wow...that is looking rather parabolic, no?