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Tuesday, April 15, 2008

March Inflation Up on Higher Energy and Food Costs

Bob Brinker will have a hard time telling his audience that inflation is low after today's report. According to the US Government, wholesale prices, as measured by the Producer Price Index (PPI) gained 1.1% in March on higher energy and food prices. Press Release Text

According to the US Labor Department, energy prices rose 2.9% in March, while food prices gained 1.2%.

The core producer price index, which excludes volatile food and energy, rose 0.2%.

Year-over-year, the PPI is up 6.9% with core PPI up 2.7% over the same time period.

The report states:

During the first quarter of 2008, the finished goods index rose at a 10.2-percent seasonally adjusted annual rate (SAAR), after climbing at an 11.5-percent SAAR during the fourth quarter of 2007. Much of this slower rate of increase can be traced to prices for finished energy goods (EC: Gasoline is a finished energy good while crude oil is raw material), which moved up at a 22.5-percent SAAR for the 3 months ended in March after jumping at a 44.1-percent SAAR for the 3 months ended in December.

Last year, Peter Brimelow reported (2nd to last paragraph) that Bob Brinker said the following about inflation in his newsletter:
However, Brinker clearly does not regard inflation as a threat, and congratulates Federal Reserve chide Ben Bernanke for refusing to monetize oil-price increases:
    "We have always maintained that rising oil prices act as a tax on consumers, and are therefore counter-inflationary as they have a negative impact on consumer discretionary spending power."
There was no mention of "core inflation" in that Marketimer quote.

Honeybee reported in post #1294 at our Bob Brinker Discussion Forum that Bob said of inflation:
Brinker: "If you’re a Moneytalk listener you know that we have repeatedly said that those that were forecasting runaway inflation, hyper inflation – whatever you want to call it, were completely wrong because they were basing their forecast on a bogus centerpiece……..high oil prices would result in runaway inflation – not true…….”

That is a not true. PERIOD. I can't name one person of consequence that said we would have run-a-way inflation with higher oil prices if the Fed raised rates. But, one could argue that prices rising at a seasonally adjusted rate of 10.2% is close to being the very high inflation we saw in the 1970s and 1980s.

MANY of us said higher oil is inflationary and the Fed was right to raise rates to keep inflation in check. Brinker disagreed at the time. He was wrong so he "misrepresents" what he said in the past.

People also said that if the Fed had kept rates low and let the housing bubble continue to expand, then we would have an inflation problem from higher energy prices. Brinker disagreed and asked on the radio: "What does Allan Greenspan have against people's homes going up in value?" as he argued they should have stopped raising rates at 4% when speculation in houseing was out-of-control.

Brinker:The inflation hawks, that’s what they said would happen. They said that rising oil prices would cause rising core prices and it did not happen – they were completely wrong.”
Bob is in denial as the last three months worth of data shows core CPI at 2.7% is well above the Fed's 1.0 to 2.0 comfort zone. Bernanke said before Congress just the other day that inflation was too high. A double digit seasonally adjusted rate of inflation for the past six months is far from "low inflation" that Brinker predicted we would see if energy prices went up.

Brinker failed to predict that the demand push for energy is coming from outside the US! The more the Fed cuts rates, the higher energy prices go up due to the falling dollar.

In January 2000 Brinker thought "inflation approaching 3%" was too high and in the presence of over valuation he took 60% of his portfolios out of the market. Maybe if he had seen higher inflation last fall and the impacts on earnings when the markets were in the 1500s and the sentiment indicators were screaming "TAKE PROFITS" he could have taken 20% out so he'd have money to buy now in the mid 1200s to low 1300s.

With producer prices up 6.9% year-over-year they will have to pass these on to consumers or suffer from lower profits. Neither of these are good for the stock market which explains much of why the stock market is down nearly 20% off its high.

The problems in the US economy today are from the housing bubble bursting and the bankers lending money to people who could not pay it back on the agreed upon terms. Outside the US the international econmies are doing much better and the demand for energy and food there is driving the prices higher causing inflation.

I lost most of my respect for Brinker long ago over how he refuses to admit his mistakes. But I have to admit listening to see what lengths he will go to try and spin the facts and figures to avoid admitting he is wrong is very entertaining radio!

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