Stagflation Update - 06/05/2007

By proceeding, I acknowledge that I have read and understood the Disclaimer, Performance Reporting Disclosure and Copyright Statements . The following is an update of a post that I wrote on April 17th, 2007 regarding the probability of a Goldilocks scenario versus Stagflation. I’ll update the data on the last day of each month and repost it. The purpose of this post and subsequent updates is to objectively examine the changes in both economic and inflationary data since the Federal Reserve made the decision to quit raising rates in the Summer of 2006. (Click here to view original post.)

In the month of April, Inflation figures moderated a bit. Specifically, the CRB Index and the PPI came down some but that was after a scorching hot February so they were due for some moderating. Energy prices are still climbing and the price of gas at the pump reached an all-time high a couple of weeks ago at $3.22/gallon (Nationwide average according to AAA.) The market is focused on Year over Year (YOY) figures on PCE, CPI and PPI but these are all skewed down because of the big dip in energy and metals prices last fall. PPI and CPI for the trailing 6 months (since November) are at 4.8% and 2% respectively which would be 9.6% and 4% annualized. The big news is on the economic front. A mixed bag of improving manufacturing and construction data but a big dip in consumer spending. The other significant development was the much larger than expected dip in existing home sales below 6M annualized units. The average home price for existing sales did move up. This can be attributed to the fact that subprime borrows who would buy cheaper homes are being squeezed out of the market by stricter lending standards. While the consumer curtailed his spending, he still has a pretty optimistic outlook of the future as both Confidence and Sentiment improved.