Wednesday, June 14, 2006

Core CPI Higher Than Expected

From Bloomberg:

U.S. May Consumer Prices Rise 0.4%; Core Rises 0.3%

Rising gasoline costs and rents propelled U.S. consumer prices higher last month, increasing speculation that Federal Reserve policy makers will raise interest rates later this month.

Prices paid by Americans rose 0.4 percent after April's 0.6 percent increase, the Labor Department said in Washington. Excluding food and fuel, so-called core prices rose a larger- than-forecast 0.3 percent for a third straight month. Core inflation over the last three months was the highest since 1995.

``The implication now is that we could see people start to be concerned about further rate hikes moving forward,'' said Jason Schenker, economist at Wachovia Corp. in Carlotte, North Carolina. ``It looks like we could see higher fed funds rates potentially moving forward.''
...
Economists expected a 0.4 percent increase in the consumer price index, based on the median of 77 forecasts in a Bloomberg News survey. Forecasts ranged from increases of 0.2 percent to 0.6 percent. Core prices were forecast to rise 0.2 percent.

31 Comments:

Blogger Richard said...

i knew it would be higher. how could it not be when we're just ramping down from the largest global liquidity pump the world has ever seen? inflation was bound to occur, the timing is always a question. expect 2 more rate hikes of 25bps each at minimum. not that the consumer seems to care. they just keep spending like drunken sailors with an ongoing negative savings rate and examples like Best Buy who sells frills having a blowout quarter.

6/14/2006 08:21:00 AM  
Blogger Richard said...

part of the rise in CPI were rents are up. finally we're seeing rents rising due to sky high housing prices and inflation everywhere else passing through. now the gov't can't ignore shelter anymore though it's a bit too late to react to it. they need to revise the CPI at some point to get a better grip on what's really going on in the economy.

6/14/2006 08:28:00 AM  
Anonymous Anonymous said...

richard,

The next core-CPI change will be ex-food ex-energy and EX-SHELTER.

That should fix this inflation problem.

Ray

6/14/2006 08:39:00 AM  
Anonymous Anonymous said...

Sit on the sidelines if you can--watch this slow motion, live action correction unravel! Pain, pain, pain if you bought the hype. Opportunity if you have lived as a contrarian.

WM

6/14/2006 08:44:00 AM  
Blogger X-Underwriter said...

One more nail in the coffin

6/14/2006 08:49:00 AM  
Anonymous Anonymous said...

Of course things are just rosy. Chain store sales are up 4.0% over last year and total retail sales are up 9.1% excluding autos.

And in NYC, most don't think anything of spending $300 for a pair of jeans every few days & $80 for a 'polo' shirt. The ones at Lord & Taylor (with the coupon) are too downscale for their taste.

This as real wages are down and housing is becoming unaffordable for all but those who make in the six figures.

6/14/2006 08:58:00 AM  
Blogger Richard said...

those making six figures? on $100k you can barely afford a house in a run down 50's tract neighborhood at today's prices. the reality is if you want to live in this part of the country you need 2 incomes, end of story.

6/14/2006 09:06:00 AM  
Blogger delford said...

But If divorce is going to keep demand strong for housing, than there fgoes the two income theroy right?

6/14/2006 09:12:00 AM  
Anonymous Anonymous said...

It's a scary reality--you must have two outsized incomes or one obscene income to prosper here.

WM

6/14/2006 09:12:00 AM  
Anonymous Anonymous said...

2 Six figure incomes to live outside of Manhattan, or a single person making over $200,000 to survive.

Someone making just $75,000 - $100,000 a year can barely afford rent on a studio apartment in Suffolk county and won't qualify for 80% of available rentals anywhere in the NYC metro area including NNJ, or any of the 5 boros.

6/14/2006 09:25:00 AM  
Anonymous Lee S said...

"Someone making just $75,000 - $100,000 a year can barely afford rent on a studio apartment in Suffolk county and won't qualify for 80% of available rentals anywhere in the NYC metro area including NNJ, or any of the 5 boros.

6/14/2006 10:25:12 AM "

What kind of whacked out reality are you in? You can find 1BR apartments for $1000 in Flushing, Astoria, College Point. Granted, these aren't the most prestigous neighborhoods, but some sections are acceptable. I don't know much about the other boroughs, but I can't imagine why someone making $75K couldn't afford renting an apartment in NY's outer boroughs.

I'm sitting pretty in a rent stabilized building and I'm not going to budge until I see at least a 20% correction.

6/14/2006 10:05:00 AM  
Anonymous Anonymous said...

If you have kids, you can't live in a one bedroom, you can't pioneer too much, you must pay daycare to work, you may have to have parochial or private schooling if you live in an uneven town, etc. It adds up quickly to needing six figures to survive and more to prosper. That's sizable double incomes in the world where I live.

WM

6/14/2006 10:17:00 AM  
Blogger RichInNorthNJ said...

Just an FYI.
As Richard pointed out, the "rents" mantioned in the CPI are actually due to the high cost of housing and not actual rents for rental units.

From MarketWatch:
"Owners' equivalent rent

The other issue comes from owners' equivalent rent, which is the method the Labor Department uses to measure the price of owning a home.

In both March and April, owners' equivalent rent rose 0.4% for the second and third time since late 2001. With equivalent rent accounting for nearly one-fourth of the CPI, those 0.4% gains were a major factor in nudging the core CPI up 0.3% in March and April.

But some economists said the acceleration in the core CPI didn't show more inflation, but rather was the perverse result of a slowing housing market.

Here's how it works:

The government recognizes that homes not only provide shelter services, but are also assets that add to individuals' wealth, just as stocks and bonds do. Asset prices are not included in the CPI.

To measure just the price of the shelter services and not the long-term value of owning the asset, the government essentially assumes that homeowners rent their homes to themselves. It computes an implied rent called "owners' equivalent rent" by asking them how much their house would rent for.

That's the "opportunity cost" of owning instead of renting.

During the heady days of the housing boom, more people wanted to buy a home in order to cash in on the big gains. Condos were converted from rentals to owner-occupied. Home construction boomed and rental vacancy rates soared, keeping rents down even as housing prices were rising at double-digit rates.

But now, more people find themselves priced out of the market, or are hesitant to pay the asking prices. *Vacancies are falling and rents are going up.

So, even though home price appreciation is now slowing, it's finally showing up in the CPI, years late.

The impact on the CPI has been to understate the inflation in housing during the boom, and to overstate inflation during the correction."

*Vacancies are falling and rents are going up.

I still believe they are talking about housing cost in this line and not rental cost. As speculators try to unload the amount of available rentals will probably go up. My theory comes form the amount of "double" listing I see of homes available for sale and/or rent.

6/14/2006 10:38:00 AM  
Blogger chicagofinance said...

delford said...
But If divorce is going to keep demand strong for housing, than there fgoes the two income theroy right?
6/14/2006 10:12:35 AM

hilarious!

6/14/2006 10:42:00 AM  
Anonymous Anonymous said...

Think about the 2 income families with a combined income of only $100,000! About 20-25% of that is spent on childcare if they are not in 1st grade yet!

6/14/2006 10:57:00 AM  
Anonymous Anonymous said...

There are no 1 bedroom apartments in Astoria, Flushing or Forest Hills for less than $1,500 a month.

$1,000 will buy a small studio.

But these wealthy hipsters & transplants who have unlimited money have no problem with paying $1,500 - $2,000 a month in Queens plus the 15% real estate agents fee.

Rents have taken off and are rising with home prices.

Rental vacancies all across the 5 boros and NYC metro area are at record lows and under 1% in Manhattan.

6/14/2006 10:58:00 AM  
Blogger RichInNorthNJ said...

Rents have taken off and are rising with home prices.

Rental vacancies all across the 5 boros and NYC metro area are at record lows and under 1% in Manhattan.


Can you show me where you got the data for this information?

6/14/2006 01:04:00 PM  
Anonymous Anonymous said...

If I spent as much time working on my own real estate sites as I do slogging thru blogging, I'd probably make more money. But I enjoy a good read. Thanks for the break. Stop by my site if you can.

6/14/2006 01:21:00 PM  
Anonymous Anonymous said...

My rent has remained unchanged for many years (we'll see an annual increase of $15 or so a month, for example).

6/14/2006 01:48:00 PM  
Anonymous UnRealtor said...

Another $30,000 price drop on this one in Ridgewood:

http://www.realtor.com/Prop/1055678619

I think it's on a half-acre.

Any idea why this house has been sitting so long? Sure, it's expensive, but it's almost twice the house for properties currently on the market in this range.

6/14/2006 01:54:00 PM  
Blogger delford said...

unrealtor: If I had to guess I would say taxes, RW has always been a hight ax town, and if it has undergone a reval in the last year, they probably got hosed on the taxes.

Lots of BC towns lat year underwent a reval, and more this year, and the numbers in many cases were ugly.

Even OK towns now have hosues with a 10k or more yearly tax bill.

Only other thought is it might be on a main drag, location is starting to matter again.

6/14/2006 02:12:00 PM  
Blogger Metroplexual said...

FYI,

Beige Book on Housing mentions NJ specifically.


From the Fed's Beige Book Summary:
Residential real estate markets continued to cool across much of the country--with most Districts reporting slower homebuilding and sales of existing homes. In contrast, commercial real estate activity continued to strengthen in most Districts. A few reports noted concern about too much building.

Some softening of the market for existing homes was reported by ten Districts--Chicago, Cleveland, Dallas, Kansas City, Philadelphia, Minneapolis, New York, Richmond, St. Louis, and San Francisco. Dallas and Richmond noted that activity remained quite strong, and Chicago reported slowing from high levels. San Francisco reports hot housing markets in Utah and parts of the Pacific Northwest. Several Districts said sales had weakened for some of the most expensive homes, except in the Dallas District where demand for lower-priced homes "had dipped noticeably." Atlanta reported that residential sales were near year-ago levels in most parts of the District, but that sales weakened and inventories increased in Florida. The Philadelphia District said sales of homes in resort areas have declined sharply. The New York District reports a sharp deceleration in prices in the suburbs around New York City, but a tightening of the Manhattan rental markets.

Homebuilding slowed in most Districts--Chicago, Cleveland, Dallas, Kansas City, New York, Philadelphia, St. Louis, and San Francisco. The New York District reported that some homebuilders in New Jersey are withdrawing from the authorization process and allowing their options to build to expire, noting that increases in fuel and materials costs are pinching profits. Homebuilders in the Atlanta District reported that single-family home construction was near year-ago levels in most parts of the District, except in Florida, where sales slowed. The Atlanta District also reported that Florida condominium sales continued to weaken and several projects were cancelled.

6/14/2006 02:47:00 PM  
Blogger Metroplexual said...

I forgot the link.

http://www.federalreserve.gov/fomc/beigebook/2006/20060614/default.htm

6/14/2006 02:59:00 PM  
Blogger RichInNorthNJ said...

New York District reported that some homebuilders in New Jersey are withdrawing from the authorization process and allowing their options to build to expire, noting that increases in fuel and materials costs are pinching profits.

But I thought it was because there was no place left to build and too many restrictions when there was someplace to build.

:-P

6/14/2006 05:17:00 PM  
Anonymous Anonymous said...

gsmls @ 30,900

Inventory grows by 'only' 52 in the past 24 hours.

6/14/2006 07:25:00 PM  
Anonymous Anonymous said...

{{{What kind of whacked out reality are you in? You can find 1BR apartments for $1000 in Flushing, Astoria, College Point. Granted, these aren't the most prestigous neighborhoods, but some sections are acceptable. I don't know much about the other boroughs, but I can't imagine why someone making $75K couldn't afford renting an apartment in NY's outer boroughs}}}}

You obviously have not looked for housing in any of the 5 boros in NYC or the suburbs if you want to believe that statement above.

Not only do you need to pay a few months rent upfront, you typically need to pay a brokers fee of 15% - 30% of the annual rent. Most landlords do not deal directly with tenants.

'Owners Equivalent Rent' rose by 0.6% the highest percentage in 16 yeras.

And if someone wanted to live in a 'prestigous neighborhood' they would live on Park Avenue or 5th Avenue in the 60's or 70's....

Actual working people who don't have trust funds or mommy & daddy to pay rent don't give a shit about prestige but are more worried about finding a reasonably safe place to live that is within a 2 hour commute of their workplace.

6/14/2006 09:31:00 PM  
Anonymous Anonymous said...

my goodness
who in their right mind would
want to live in queens or for that
matter NY. Period.

$1,000 per month ,,, live in a closet or the street with all
the foreign waste.

Its worst than NJ.

I like Wallington BC. Great town.

6/15/2006 06:14:00 AM  
Blogger chicagofinance said...

Who are you, John Rocker?

6/15/2006 10:33:00 AM  
Anonymous Anonymous said...

all i know is im glad
i got out from under with
my house,,, nice,,
took it off the table.

nice to rent for a while
and watch this unfold.

New Jersey,,home of one of the most corrupt govs. going.

and of course the highest tax
structure.

Go down to Newark airoport and watch
them arrive..

6/15/2006 02:02:00 PM  
Anonymous Anonymous said...

Meh. I had a pretty nice 2br apt in St. George SI for $1100. Back yard and everything. If you know where to look and where to avoid, there is reasonably affordable housing in the outer boros.

Taxes, utilities, insurance, costs of goods and services, private schooling, etc. are other matters entirely :p

6/19/2006 02:56:00 PM  
Anonymous living online said...

Hi. Thanks for the insights.

Steve @
http://www.lifeincome.org

6/26/2006 11:31:00 AM  

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