Strategic Briefing | 6.15.2011 | U.S. Inflation

Consumer Prices in U.S. Probably Rose in May at Slowest Pace in Six Months
Bloomberg | June 15
The cost of living in the U.S. probably rose in May at the slowest pace in six months as fuel costs waned, economists said before a report today. The consumer-price index increased 0.1 percent after a 0.4 percent gain in April, according to the median forecast of 79 economists surveyed by Bloomberg News. The so-called core measure, which excludes more volatile food and energy costs, may have increased 0.2 percent for the fourth time in five months.

Inflation Outlook Has Treasury Bulls Snorting
The Wall Street Journal | June 15
Investors sense that inflation gauges look set to peak and start rolling over by early next year. Certainly, a rebound in oil and other commodity prices could draw out that process. But with global growth throttling back, that prospect has dimmed. Prices on goods further back in the production pipeline, for example, already are down sharply. Prices for finished wholesale goods rose just 0.2% month on month during May, and crude-material prices slumped 4.1%. “The idea that there is significant inflationary pressure in the U.S. economy over the medium term is looking challenged,” says BTIG chief global economist Dan Greenhaus.
CPI Forecast
FC Market Squawk | June 15
4CAST sees May consumer prices in the US unchanged from April. The impact from food and energy will likely turn negative for the 1st time since June 2010. This will be driven primarily by a sharp decrease in energy prices, while gasoline prices seem likely to see downward pressure from seasonal adjustments. Meanwhile, we see food prices staying positive, but moderating to a 0.3% gain as the trend stabilises. Ex food and energy looks set to maintain a stable trend with a 0.2% increase after rounding effects, in-line with the trend of 0.1-0.2%, while being contained by subdued wage growth and uneven performance among the components. On a yearly basis, CPI looks set to rise further to 3.3%, with core drifting higher as well to 1.4% from 1.3%. The Reuters consensus for CPI is 0.1% MoM, 3.4% YoY on a headline basis. The Reuters consensus for Core CPI is 0.2% MoM and 1.4% YoY.
Wholesale prices rise at slower pace in May
MarketWatch | June 14
U.S. wholesale prices rose in May at the slowest pace in 10 months as the cost of food fell and energy prices moderated, the government reported Tuesday.
Complete Pass-Through of Core Wholesale Prices to Consumer Prices is Not Here Yet
Northern Trust | June 14
The Producer Price Index (PPI) of Finished Goods increased 0.2% in May, following larger gains in each of the past five months. A 1.5% jump in energy prices was offset partly by a 1.4% drop in food prices during May. The BLS indicated that energy prices accounted for a large part of the increase in the wholesale price index. Energy prices have risen for eight straight months… At the earlier stages of production, the intermediate goods price index and core intermediate goods price measure advanced 0.9% in May. The latter has risen for ten consecutive months and the increase in May is traced to higher prices of industrial chemicals. Despite the sustained upward of core intermediate goods prices and the core finished goods prices, core consumer prices show a mild upward trend, implying that a complete pass-through of higher wholesale prices to consumer prices is not visible, as yet.
Producer Price Food Inflation: Crude vs. Consumer
Carpe Diem (Prof. Mark Perry) | June 14
Double-digit inflation (or deflation) rates in crude food items (like we’ve had for the last 11 months now starting last July) never translate into double-digit inflation (deflation) rates for finished consumer food products.

U.S. Wholesale Prices Rise 0.2% on Plastics, Fuel, Textiles
Bloomberg | June 14
“Consumers don’t have the income to sustain the higher food and energy prices, so they’re going to cut back on spending elsewhere,” said economist Neil Dutta at Bank of America Merrill Lynch in New York after the report. “When you have five people competing for every job, wages are going to remain very weak, and that’s what ultimately drives inflation.”