Supposed Deflation In October Blows Door For QE3 Wide Open

Tyler Durden's picture

The decoupling theme for dummies continues to be alive and well. Following yesterday's simply ridiculous economic data, today we learn that in October live got cheaper as broad inflation as determined by the CPI declined for the first time since Jun, printing at -0.1 on expectations of an unchanged reading, and down from 0.3% in September. The bulk of this drop was on the decline (?) in energy prices: ex food and energy CPI was up 0.1%. Well, with the WTI back to $100 in anticipation precisely of the QE3 loophole this report is supposed to open, we can promptly remove that "deflation" notion. Still, Fed hawks can stand down "looks like we passed a cyclical peak" says Bloomberg analyst TJ Marta. In the meantime, Year over Year inflation increased by 3.5%, or about 35% if one actually counts the things people buy and removes the hedonic adjustments due to a carton of milk now assumed to have a rearview camera, power steering and ABS brakes (as per the BLS), and costing negative money in real terms or something.

From the BLS:

A decline in the energy index more than offset small increases in the indexes for food and all items less food and energy to create the all items decline. The energy index turned down in October after increasing in each of the three previous months as the gasoline and household energy  indexes declined after a series of seasonally adjusted increases. The food index rose in October, but posted its smallest increase of the year as the fruits and vegetables index declined sharply.


The index for all items less food and energy increased 0.1 percent in October; this was the same increase as last month and matches its smallest increase of the year. While the shelter and medical care indexes accelerated in October and the apparel index turned up, the indexes for new vehicles, used cars and trucks, airline fare, and recreation all declined.


The all items index has risen 3.5 percent over the last 12 months, a lower figure than last month’s 3.9 percent increase, as the 12-month change in the energy index fell from 19.3 to 14.2 percent. In contrast, the 12-month change for all items less food and energy edged up from 2.0 to 2.1 percent. The food index 12-month change was 4.7 percent, the same figure as in September.


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AngryGerman's picture

it's all getting cheaper bc there are less people that can afford to buy shit...

Da55id's picture

currency inflation but number of units purchased deflating

Comay Mierda's picture

seriously who believes this shit anymore? fact = consumer spending higher, consumer confidence lower. why? because the price of everything not included in the bullshit CPI (dont get me started on hedonics) is going UP, like food, and consumers are forced to spend more money on the shit and they're pissed about it.

this bullshit CPI makes GDP overstated too.  realworld CPI at almost 12% and realworld GDP has been contracting since 2007.  but what the fuck do i know?  the phd economists at the fed and the BLS have it all figured out

mick_richfield's picture

Nobody who pays the least bit of attention believes it anymore.

Just before the end, the servants of the Perversion are only talking to each other.


akak's picture

"Supposed deflation" was the key phrase in the headline here.

Deflation has NEVER occurred under a fiat monetary regime, and anyone waiting to see it under our own might better spend their time searching for the edge of the flat earth.  Governments throughout history have always, ALWAYS resorted to the same tactic when confronted by insurmountable debt: depreciate the currency.  It is absurd and idiotic to expect to see a fiat currency RISING in value as the issuing government takes on exponentially more and more debt, and anyone who still holds to this intellectually insulting premise is either profoundly ignorant of ALL of monetary history, or else is merely a shill and a lackey spreading the propaganda and disinformation of the power elite.  I cannot tolerate this deflationary bullshit talk any longer --- its clueless and/or dishonest proponents would have better luck trying to convince me that up is down and black is white.

SheepDog-One's picture

I dont see anything getting cheaper myself, they mean theyre worried that the FED's 'assets' are getting cheaper. They dont give a shit about what we have to pay to get by or wage deflation. 

island's picture

You're on-the-mark.  + a cool 1T

Hard1's picture

You don't seee anything getting cheaper 'cause you don't work at Goldman.

jekyll island's picture

Housing is getting cheaper.  Real estate took the lead heading into the crash, we will not recover until it corrects, but the gubmint won't let it.  The Bernank can speak out of both sides of his mouth and you can have sector inflation in a deflationary environment. Or vice versa. 

centerline's picture

Demand destruction done the hard way!  The feedback loop lives.

Chuck Walla's picture

Many in the bottom 60% are borrowing to meet the inflated prices of food & energy.  How long can that go on?

johngaltfla's picture

Not exactly. Look at the chart I maintain tracking the "necessities" one needs to live off of. It is a nightmare as year over year we've had sustained increases in prices. The difference is that this month's "total" report shows a mild decline M-o-M. Y-o-Y the "official" rate is still increasing and for things you need to live, it is off the charts.

GeezerGeek's picture

Being both a pack rat and a recent retiree (not by choice) I happened to be going through a pile of old magazines last week. I came upon some advertisements from major food stores dated January 2003. In 8 years prices for food have increased approximately 50%. I suspect that much of that increase happened in the last two years. Your chart showed food costs rising at only 5% YOY? It sure seems higher to me, and that ignores the recent increase in the price of peanut butter due to a bad harvest.

johngaltfla's picture

That's 5% Y-o-Y PER MONTH. Remember, inflation is a cumulative data point, the prices have not reversed since the 08-09 collapse. In fact if anything using their own data and your eyeball calculations, 50% would be about right when considered with packaging and quality of goods inflationary practices. Remember the 5% from October of last year is on top of the 5% from September of last year. Month over month the index might change but one has to consider the hedonic calculations used to manipulate monthly data. The annualized report with revisions tells a shocking tale which you have picked up on.


Here is the cumulative inflation chart from 1990 through the September report per the FED for NSA inflation indexes same as my first chart:

I'll update that chart when FRED makes the data available.

Bwahaha WAGFDSMB's picture

1.05^8=1.48 5% compounded annually yields an increase of 48% in 8 years.  Intuition doesn't work very well when dealing with exponential growth.

ShortTheUS's picture

*DJ Fed's Bernanke: It's Free, Swipe Yo' QE3!

qussl3's picture

Gotta love those stats nerds, where's crude and brent now?

Deflation my ass.

eigenvalue's picture

This reminds me of the winter of 2007. Oil was strong with not so much fundamental support. 

qussl3's picture

Was thinking the same thing, tho this time around high energy prices will blow up the EZ instead of housing.

2008 will be a cakewalk if the ECB doesnt backstop its banks.

Mike2756's picture

Banks? What are they going to do about the countries?

qussl3's picture

The countries dont matter, the politicians will never let the people default, the public WILL pay.

But if the banks go boom, the rich may get hosed when the little people get pissed off enough to go into pitchfork mode.

SheepDog-One's picture

ECB backstop the banks...yep its like watching broke winos trying to borrow $5 bucks from each other.

e-recep's picture

Is oil all you consume?

SheepDog-One's picture

No, but oil gets everything you consume to you.

boiltherich's picture

And sugar, they put it in everything now, both corn and cane, if sugar goes any higher Cuba will indeed become a workers paradise eh?

centerline's picture

Deflation is the primary trend.  That is what this whole mess is about.  If we had organic growth, the ponzi would continue.  The fact of the matter is that organic growth ran out decades ago.  Since then growth has been synthetic - leverage and credit.  Folks are too dumb to wake up to this because they only see prices going up.  That is nothing more than the byproduct of this synthetic economic growth (fucking with the fiat).

jekyll island's picture

Yes, there is deflation, that is why the fed is printing so much FRN$.   Since the banksters created all the (bad) debt out of their asses, it's all being crammed back up in there. Think of it like a patient:  can someone have heart disease and diabetes at the same time?  Deflation and inflation are not mutually exclusive, they can exist together AND they are being distorted by gubmint intervention.  

Silverhog's picture

Great, everything is getting cheaper except the shit you need.

Gief Gold Plox's picture

Ironically brought on by buying too much cheep Chinese shit you don't need.

Sadly a global story of our generation.

SheepDog-One's picture

Glad I was never a 'consumer monkey' always jonesing to charge the latest Chinese crap on credit. 

IrritableBowels's picture

Now's a great time to snatch a jumbo sized hi-def flat screen 3d 1080p 600Hz NFLX ready...blah blah blah.

SheepDog-One's picture

That will look great in the tent this winter.

mick_richfield's picture

They made us get rid of the tents.

But we will overcome! 

I got an app on my iPhone that shows a picture of a campfire.

Overflow-admin's picture

hi-def = hi-deflation? LOL!

I prefer to sit on cash bullion... Hi-tech goods don't last enough, it's pure waste to rush on these products. Waiting for the crash to order a new computer.

centerline's picture

Cheep chinese shit sold to brainwashed consumers to keep a global ponzi alive for benefit of a few.  And among the "few" are various factions/players playing against each other on timelines much longer than we consider.

DosZap's picture

As I do all the shopping the prices are astonishingly high.

In the past 2 yrs Albacore Tuna, has gone from $8.99 per 8pk, to $13.95. $5.00 friggin bucks a pack.

Anything edible or used in living (sustenance), is thru the roof.

Future Tense's picture

European debt write downs, the municipal failures in the United States, the deleveraging and aging consumers around the world, as well as the social mood explained perfectly by Robert Prechter is going to bring deflation first, just like Hugh Hendry believes.  The contagion is spreading rapidly through Europe and the debt to GDP picture I saw in this article yesterday explains it all:

The Axe's picture

Tyler,  there is wage deflation. That is a concern to everyone!!!  

Global Hunter's picture

wage deflation would be OK if things like food and gas deflated at a faster rate but they didn't, don't and after full scale printing begins will continue to won't.

e-recep's picture

Well, human population cannot grow indefinitely, can it. There would be a stop or at least an interval. This mess we're in right now looks like one.

mick_richfield's picture

Well, human population cannot grow indefinitely, can it.

Not here.

slewie the pi-rat's picture


note bien

when we start reading "think-tank stuff" about the "demographic problem" of too low birth rates and not enuf babies for future growth and funding liabilities/entitlements, maybe it's time to pause and check the wind vis-a-vis the mother ship and the bonfire of the insanities

L0L!!!   ...bondfire of the inanities? 

centerline's picture

Global wage arbitrage finally crashing on our shores.  Pushes us down while creating pressures to advance the Chinese middle class.  The current economic landscape is not molded for this.  So, we are trapped and so are the Chinese.  Epic fail as the players in the game all realize at once a stalemate condition.

Wage deflation creates demand destruction, which fuels deflation.  Right now we are in the middle of a huge dead cat consumer bounce fueled mainly by the college bubble and the flow of zombie money running scared, looking for yield and/or safety.

fonzanoon's picture

well if there is deflation then supposedly the banks will be f'd right?

Dr. No's picture

First, if deflation was actually occuring, considering the banks have $1.6T in excess reserves (cash), I would say they are sittin pretty. The banks dont loose.

Besides, if a the circumstances were such that deflation harmed the banks and considering they control the money supply, you can bet there will be no deflation.

fonzanoon's picture

Deflation is only happening in one area and that is housing. The more people go underwater and walk away from their homes the more the banks need to get bailed out again. The lower rates go and the more people refi or modify their loans the lower the profit margin becomes for the banks. I don't see any way they are sitting pretty. With that being said I am getting hammered on skf.

Dr. No's picture

many if not most of those mortgages were passed to Fannie and Freddie.  Hello taxpayer!  For those not purchased by Fannie/Freddy, see my note about the banks ability to controll money supply.

fonzanoon's picture

Fair enough. But that means barely surving, I don't see how they are sitting pretty. I am considering closing my savings account at a major commercial bank. I bet you did not factor this in to your equation either.

Dr. No's picture

If barely surviving means rolling around in a $1.6T pile of cash with the ability to print more as needed, then yeah, I agree with your assessment.