Fed Enters Rate Hike Meeting With First Headline Deflation Since January

Tyler Durden's picture

As the final inflation data before the FOMC decision, some have argued that this print matters most as an excuse to stay in 'emergency mode' - perhaps they are right. Consumer Prices dropped 0.1% (as expected) in August - this is the first 'deflation' since January - great news for consumers. Gasoline and airline tickets saw the biggest drops dragging down YoY CPI but The Fed will shrug its "transitory" shoulders but ex-food-and-energy did miss expectations, rising 1.8% YoY (against 1.9% exp). Notably food prices rose 0.2% in August, driven by a surge in egg prices. So WWJYD?

 

Chart: Bloomberg

The index for all items less food and energy increased 0.1 percent in August, the same increase as in July. The index for shelter rose, as did the indexes for apparel, tobacco, and alcoholic beverages. However the index for airline fares declined sharply, and the indexes for household furnishings and operations, recreation, and used cars and trucks also decreased in August, with the indexes for new vehicles and medical care unchanged.

Full Breakdown...

 

The gasoline index declined sharply in August and was the main cause of the seasonally adjusted all items decrease. Other energy indexes were mixed, with the fuel oil index continuing to decline but the indexes for electricity and natural gas increasing in August. The food index rose 0.2 percent in August, with the indexes for eggs and for fruits and vegetables rising notably

And while energy was the culprit for the headline deflation with energy prices sliding 2.0% in August, here is some more details on where the BLS does see inflation:

The index for all items less food and energy increased 0.1 percent in August, as it did in July. The shelter index was the main source of the increase; it rose 0.2 percent in August following a 0.4 percent increase in July. The rent index rose 0.3 percent in August, the same increase as in July, while the index for owners' equivalent rent increased 0.2 percent. The index for lodging away from home, however, turned down in August, falling 0.6 percent after a 2.5 percent increase the prior month. The apparel index increased 0.3 percent in August, the same increase as last month. The tobacco index also rose in August, increasing 0.5 percent, and the index for alcoholic beverages advanced 0.1 percent. The medical care index was unchanged in August, with the indexes for hospital services and prescription drugs rising but the indexes for physicians' services and nonprescription drugs declining. The new vehicles index was unchanged in August, as was the index for personal care. Several indexes declined in August. The index for airline fares fell 3.1 percent after decreasing 5.6 percent in July. The index for used cars and trucks decreased 0.4 percent, its fourth decline in a row. The index for household furnishings and operations declined 0.3 percent, and the recreation index fell 0.1 percent.

 

The index for all items less food and energy has risen 1.8 percent over the past 12 months; the 12-month change has been 1.8 percent in five of the last 6 months. The indexes for shelter, medical care, new vehicles, recreation, and tobacco are among the indexes that have increased over the past year. In contrast, the indexes for airline fares, apparel, used cars and trucks, and household furnishings and operations have all declined over the last 12 months.

Finally, while the Fed now has to decide if it will hike rates with the first headline deflation in 7 months, here is the biggest threat for the Fed - imported deflation, which as we noted last week in our post on tumbling import prices, is sending a recession-level deflation impulse and is the reason why Goldman is saying far from hiking, the Fed should consider easing at this point. 

 

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VinceFostersGhost's picture

 

 

 

So we got that going for us.....which is nice.

 

Gunga Galunga.

NoDebt's picture

So, how about a little something?  You know, for the effort.

buzzsaw99's picture

big hitter the lama, long.

NoDebt's picture

Into a ten-thousand foot crevasse, right at the base of this glacier.

We should have All-Caddyshack Quote Day on ZH sometime.

buzzsaw99's picture

tell them you're a "looper"

insanelysane's picture

Pro jocks on stock tv channels have summed it up perfectly.

Buy stocks because the economy is ripping and the Fed shouldn't raise rates because the economy is treading water.

They should be picking up those gum balls instead of having a job in stock selling tv.

Budnacho's picture

...."Here he is at Agusta....former Groundskeeper turned-professional.."

Bryan's picture

I think it's actually Gunga Lagunga, but we'll let it slide this time.  The Dali Lama is on vacation.

LawsofPhysics's picture

Yes, "ex food and energy" (you know, the only things that are absolutely required in order to actually get shit done or build real shit - along with commodities).

Fuck these useless overcompensated paper/digit-pushers, execute every last one.

venturen's picture

does inflation include banker bonuses?

LawsofPhysics's picture

no, and not equities either...

Cognitive Dissonance's picture

Mission Accomplished? Is this Bullish or Bearish. Only the Fed (and the PPT) knows for sure.

NoDebt's picture

British.

Which, as we learned in an earlier thread this morning, means a situation or event which is much less impressive than expected.


Bryan's picture

Now don't go off all half-cocked again.

nosam's picture
nosam (not verified) Sep 16, 2015 8:42 AM

The Feral Reserve will raise rates when they decide to crash the system. The economic numbers are irrelevant.

Kolchak's picture

And they wont crash the system because their lives are on the line this time, so they sit and rot because they have no where to go.

Karlus's picture

They will crash it if a Repub is ahead in the polls

LawsofPhysics's picture

Starting to think that Trump is a plant to facilitate the implosion of the GOP and user in a new era...

He is entertaining, I will give him that.

SmallerGovNow2's picture

LOP, my thoughts exactly.  Watch the debate.  It is being reported that the other GOP candidates are going to be attacking Trump in unison.  What they fail to grasp is that will only increase Trump's popularity as a vote for him is really a vote against the status quo bullshit we've had for the last twenty years...

Nothing Ever Happens's picture

Starting to think that Trump is a plant to facilitate the implosion of the GOP and user in a new era...

He is entertaining, I will give him that.

And that's all that matters in the end. As Frank Zappa so wisely and famously said, "politics is the entertainment branch of industry."

Double seasonally adjust the data by replacing "industry" with "bankers" and it's as true today as it ever was. Lordy, if only Frank was still around to poke the squid visciously, and Trump along with it.

VinceFostersGhost's picture

 

 

I saw where the GOP talking heads got together and decided to prove government could work to prove Trump wrong.

 

I'm like......alrighty then.....get right on that.

nosam's picture

Obama is going for a third term. Trump and Clinton are cannon fodder set up to fail. The huge number of republican candidates indicates that the republicans are not serious about winning this time.

Dr. Engali's picture

Their lives are on the line, now that's a good one. You really believe that fat lazy Merikuns are going to get up off their barcaloungers from watching funny cat videos to hold these assholes accountable? Keep dreaming.

NoDebt's picture

I just got a mental picture of a skeleton sitting on a Barcalounger with an empty potato chip bag next to them and a PC still playing YouTube videos sitting in their lap.

papaswamp's picture

"
Real average hourly earnings for all employees increased 0.5 percent from July to August, seasonally
adjusted, the U.S. Bureau of Labor Statistics reported today. This result stems from a 0.3-percent
increase in average hourly earnings combined with a 0.1-percent decrease in the Consumer Price Index
for All Urban Consumers (CPI-U)."

0.5 = 0.3 + 0.1?

This that common core shit I missed out on?

JustObserving's picture

Real inflation is at least ten times higher than official estimates in US:

Chapwood Index shows real inflation in US.

In 2014, it was 9.7% - 1212% of official US inflation (0.8%)

http://www.chapwoodindex.com/

The Chapwood Index reflects the true cost-of-living increase in America. Updated and released twice a year, it reports the unadjusted actual cost and price fluctuation of the top 500 items on which Americans spend their after-tax dollars in the 50 largest cities in the nation.

Alternate inflation charts from Shadowstats shows inflation 3% to 7% higher than official statistics:

http://www.shadowstats.com/alternate_data/inflation-charts

venturen's picture

my kids school lunch at two different schools...DOUBLED THIS YEAR. $8 for a school lunch...not sure it includes a drink

JustObserving's picture

That is insane - $8 for a school lunch for a kid?  They serve a 5 course meal?  

Yes, we have no inflation.  And the Nobel Prize Winner deserves his prize.

betterlockaway's picture

Defaltion > Depression    Yay us.

LawsofPhysics's picture

Death of all fiat >>>> depression -  fixed it for you.

LawsofPhysics's picture

All hail the "new normal" where "money" is printed/entered on a computer.

The place where money is needed is in the real economy where the producer/consumer do business.

So remind me, why do we have so many middlemen stuck between the computer/printer and the producer/consumer.

Time to execute these fuckers and cut out the middlemen!!!

 

That or actually restore real collateral requirements for money creation...

tick tock motherfuckers!!!!

spiral galaxy's picture

No! No! No! It's more about the closed circle of power and pean peeps be damned! To wit, the politicians have the Fed print money which concentrates among the few who then have the power to keep the politicians in power so more money is printed which then concentrates among the few who....etc., etc
As a result, politicians abdicate any responsibility to the pean peeps and the peans are powerless against the moneyed few. Hence the surge in guns sales. :-)

LawsofPhysics's picture

...and the assured death of all fiat.

SmallerGovNow2's picture

Go local.  Decentralize this bitch...

LawsofPhysics's picture

as far as I can tell, this is already well underway, hence the "crisis" in D.C. and Wall Street.

Fuck em.

aliki's picture

unthinkable to want to give people a break at the gas station, more affordable any & everything, and a reasonable return on non-high-risk investments.

deflate this bitch to give the lower & middle class a chance. chop the debt because a debt nuclear implosion will crush the mid & bottom-end; top-end will be just fine regardless.

wanna be candidate for president? do your best to articulate just this. best raise for the lower & middle class is a 4-5% on your $$$ in a bank account cuz ur employer aint gonna be "forced" into giving u a raise. more likely to be meg whitman'd under these assinine policies.

Not if_ But When's picture

Am I wrong in thinking that inflation numbers nowadays would differ materially if the 1980 method of measuring it was utilized?

(it seems like the changes have evolved initially to make things appear better and now are being utilized to retain ZIRP and QE for fear of deflation and not meeting the FED's inflation targets.  What a farce).

LawsofPhysics's picture

bingo.  Yes, you are correct.

 

The problem now is the fact that with so many now dependent on SNAP or disability or medicare, the liabilities on the balance sheet of the U.S.S.A. are growing at the real rate of inflation.

hedge accordingly.

SmallerGovNow2's picture

See John Williams at ShadowStats dot com.  Or see the Chapwood Index (I believe it is called).  But your thinking is correct...

stant's picture

50 cent gas is great if ya got 50 cents

DaddyO's picture

<-- Yellen raises rates. (Crashes the Global Economy)

<-- Yellen plays along until the next  FED mtg. (Kicks the can)

Anecdotally, I paid $2.26 for diesel in Orlando yesterday, does this mean all is well because fuel prices are low?

DaddyO

SmallerGovNow2's picture

they raise to maintain credibility.  but it does not crash the economy.  that is already happening.  they might blame it on raised rates but it's already happening as global debt fueled demand has hit the brakes and is about to skid off the cliff like young James T Kirk in the Corvette in the first of the new Star Trek movie series...

Dr. Engali's picture

I'm not feeling any deflation. 

venturen's picture

what gas drops from 300% to only 200% increase from 5 years ago in your $20k car....and nothing?

wmbz's picture

Absolutly no reason to hold these "meetings" except to have a few cocktails and sit around in a circle jerk.

These assholes are not going to raise rates!

doggis's picture

GET A GRIP TYLER - THE RANGE OF THE FED FUNDS RATE RIGHT NOW IS A RANGE. THE RANGE IS FROM THE LOW OF 0 TO A HIGH OF 25 BASIS POINTS.

IF THE FED RAISES THE FED FUNDS RATE TO 25 BASIS POINTS - THEN ALL THEY ARE DOING IS ELIMINATING THE LOW END OF THE RANGE AND ESTABLISHING A SET POINT.

THIS IS "NO" RATE HIKE, AS 25 BPS IS ALREADY A STATED TARGET.

COME ON NOW..... STOP BEING CHICKEN LITTLE. THE SKY WILL REMAIN EXACTLY WHERE IT IS. THERE IS NO SKY FALLING. STOP SQUAWKING THE "MEME" PUT OUT BY THE BIG BANKS, AND HEDGE FUNDS!!!

WHERE ARE YOU FOR THE TRILLIONS IN LOST INTEREST INCOME LOST BY MOM/POP SAVERS??? IS THAT REALLY TYLER DURDEN WRITING, OR MR. BLANKFIEN ARE YOU "MOONLIGHTING"???

Dr. Engali's picture

If you've really been here six years then you know that the Hedge has been against the fed's policies from the beginning. There are a plenty of areas where the Hedge has gone off track, like too many click bait articles, but supporting fed policy has not been one of them. And yes, the quarter point is already baked in the cake, and the dollar rally has already done the fed's job of tightening. But, it has come at a cost to multi- nationals and emerging markets.