CPI

Yesterday we highlighted that Goldman had closed out its long China trade in anticipation of reactionary measures to what the Beijing politburo decided to telegraph as high inflation (after all there is no such thing as Chinese "economic data": it is whatever the central committee agrees on). The news sparked a fresh wave of selling in the SHCOMP resulting in the biggest two-day selloff for the index in months. Today, Goldman pours more fuel on the fire, by raising its 2011 Chinese CPI expectations from 1.3% to 4.3%, which guarantees that the State Counsil will have to hike rates as it is obvious that the CNYUSD currency peg will not be removed as long as it is being used as a political scapegoat by Washington. Furthermore, ongoing insanity by the Fed guarantees that surging commodity prices will generate even more inflation in China, which in turn will eventually lead to higher prices in the US, leading to greater margin contractions, leading to more layoffs, leading to the need for what the Chairman will see as even more QE, thereby compounding the most virtuous cycle in the global economy that nobody talks about, as more and more money sloshes around the global system, and finds packets of least resistance. However that is a topic for Q1 2011.

Australia’s CPI data was released this evening at 0.6% with expectations of 0.7% disappointing the computers which instantly sold off the AUD/USD 50pips. …expect ES to follow AUDJPY

Core inflation kept flat thanks to....tobacco prices? Aside from that, deflation rules. The only question is: does Bernanke take secret smoke breaks inbetween think tank sessions on how to destroy the US middle class quickly and clinically.

Overall a boring release, as the CPI print came in just as expected, with energy and gas contributing to the increase. Of course, with biflation now the topic du jour, where things needed are surging in price, and thing unneeded are plunging, it is only expected that the average won't change much. Overall, CPI came in at 0.3%, as expected, compared to 0.3% previously. Core CPI was at 0.0%, just below expectations of 0.1%... At least it was not outright deflation. Regardless, whatever the result would have been, it is bullish for the 4 people passing hot potatoes.

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July US CPI reported at 0.3%, versus expectations of 0.2%, and a prior -0.1%, most of it coming from increasing energy prices. Year over Year was 1.2%, in line with expectations. The inflation-and-deflation theme continues. CPI ex food and energy was up 0.1%, also inline with expectations, and slightly lower than June's 0.2%. From the release: "The energy index posted its first increase since January and accounted for over two thirds of the seasonally adjusted all  items increase. Both the gasoline and household energy indexes turned up in July after a series of declines. The food index, in contrast, declined in July, largely due to the fourth consecutive decline in the fruits and vegetables index." Full release here. Elsewhere, advance retail sales missed expectations, meaning another GDP adjustment lower to come, pushing Q2 GDP further into sub 1% territory. "The U.S. Census Bureau announced today that advance estimates of U.S.
retail and food services sales for July, adjusted for seasonal variation
and holiday and trading-day differences, but not for price changes,
were $362.7 billion, an increase of 0.4 percent (±0.5%)* from the
previous month, and 5.5 percent (±0.5%) above July 2009." The expectation was for a 0.5% increase. Retail sales ex-autos was 0.2% (exp of 0.3%, prior at -0.1%), while retail sales ex auto and gas came at -0.1%, also worse than consensus of 0.1% (previous revised upward to 0.2%).

Recently, an extended analysis by Shadow Stats' John Williams evaluated the risk of a hyperinflationary episode as one which has the potential to come as soon as next year. Somewhat in support of this theory yesterday's read of PPI came in above consensus, indicating that inflation may indeed be coming. Yet today's CPI data, whose core read came in at 0.0%, may have just poured a whole lot of cold water over Williams' thesis. Nonetheless, at the end of the day Williams may be right: the question remains - if and when the excess reserves start hitting the broader currency (as the Fed is scared shitless to withdraw liquidity on its own), we may experience a transition from deflation to inflation so rapid, that is has no historic analog. At the end of the day deflation will likely be the name of the game for quite some time, until such point as "Man of the Year" Bernanke finally flips (the turbo print switch on), and any pretence of prudent monetary policy is thrown out of the window. At that point, look for the stock market to promptly go to 36,000 followed by an even faster drop to 0, all the while the dollar gets hyperdeflated (Zimbabwe redux). With the Administration set on not losing the midterm elections by a landslide, don't expect much in terms of economic experimentation at least until 2011. At that point, all bets will be off as the Fed will likely have at most 2 more years of shelf life before both its, and thus Wall Street's, life support are forcefully yanked out.

GDP at 6.8% was not a surprise: it was Right on top of expectations. This is compared to 9.0% for the same period last year.
PPI came out at -1.1%, a whole 100 bps lower than consensus, and much lower from the 2% last year.
CPI was 1.2% versus an expectation of 1.6%. The decline in CPI indicates deflation is picking up; the more notable decline in the PPI is more troubling as it is a leading indicator for much lower CPI numbers down the line.