Disinflation for U.S.? (Thursday 15 analysis)

Discussion in 'Stock Market Forum' started by WaveWage, Oct 16, 2015.

  1. WaveWage

    WaveWage Well-Known Member

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    Always a bit complicated to analyze the inflation correctly. Meanwhile I think many outside of the energy and oil industry is happy of the lower oil rate, this makes U.S. Consumer Price Inflation declining of -0.2% in September. This was close to the expectations. Excluding the food and the energy, the CPI rose +0.2% for the month, compared to the +0.1% of August. For information, if CPI followed the exact same pace of +0.2%/month excluding food and energy, the CPI would be at +2.42% for the year.


    The fact the CPI isn't raising is taken as something positive from investors and markets often rallying at that time. As well, weekly jobless claims have gone down to 255,000, a 42-year low.


    The numbers: Dow Jones got +1.28% or +217 pts at 17,141.75 pts, meanwhile S&P 500 is at 2,023.86 pts, meaning +1.49% or +29.62 pts. NASDAQ Composite got 4,870.10 pts, with +1.82% or +87.25 pts.
     
  2. petesede

    petesede Guest

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    Yeah, Energy just makes it really hard to get a grasp on inflation right now or compare it historically. You can say wohooo.. inflation is -.2%, but that is just muddled because of oil prices right now. I think if oil prices were more in line, then there would have been a much bigger move in the markets, but most investors realize the low prices of oil right now makes it impossible to compare it to previous years.
     
  3. WaveWage

    WaveWage Well-Known Member

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    Only some investors realize it, in my opinion. I think Federal Reserve is realizing it. I don't think many parts of the market are, and will just read the headline with the disinflation, considering the Federal Reserve will delay the hiking just because of that. They're not exactly wrong because Federal Reserve may wait a bit for the energy to raise before pulling the trigger because it may matters more for them to have all prices going up to not kill inflation, but the thing is, if outside of the energy prices, you have a too much high inflation, they would have to act anyway. That's where markets aren't realizing the matter.


    What matters most for inflation stories is the unemployment, wages and cost of living. Energy isn't driven by that, given the cost of the oil resource itself. We shouldn't forget that.
     
  4. kgord

    kgord Senior Investor

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    Well, news reports aren't claiming we are in an inflationary cycle, but certainly things cost more now, then they did last year, and everything is smaller as well, packages etc. Soon everything, food items, cleaning products etc. will grow large again, and the price will jump. All these calls for the minimum wage to increase is also going to make the costs of everything go up. People don't realize how this effects the general economy. Presuming the wage is hiked to 15 dollars, the cost of manufacturing and producing goods to go up exponentially.
     
  5. crimsonghost747

    crimsonghost747 Senior Investor

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    First of all, it's deflation not disinflation. :p
    But yeah inflation is a necessary evil, it has to exist in order for the economy to run well in the long term. Currently it's a bit tricky with the oil prices but those too will balance out over time.
     
  6. petesede

    petesede Guest

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    And if the Fed had raised rates over the past year like many were begging them to do... can you imagine the posts we would be getting about ´Obama causing deflation´... Clearly the Fed was correct in not boosting rates earlier this year, and probably not even at the next meeting.

    WaveWage, That is exactly why you shouldn´t listen to most Wall Street guys when it comes to actually looking at the economy. The market is different from the economy. Wall Street wants things that are good for the short term of Wall Street... those sometimes are things that are bad for the long term of the economy, or the long term of the company in question. So when someone from Wall Street gives you their opinion on what the fed should do, it usually under the perspective of ´that will help the stock market the most in the next 3 months´.. and they will usually look at the pieces of the data that support the move they want the fed to make... cherry picking. Wall Street wants to make money, the Fed wants to grow the economy with acceptable inflation. Motives matter.
     
  7. WaveWage

    WaveWage Well-Known Member

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    But could you more go in depth about why it is needed for the economy and why you find it needed but bad? Because knowing it is needed, why not, and why not trying to keep a 2% inflation rather than a near zero inflation like some other objectives in the past. But there must be a reason.

    And this is why as well I tend to criticize myself what the markets is doing meanwhile I have to cope with it. I think it's not a secret, I'm for the interest hike because I think we're half-way and it should be fixed. Currently, the dollar is getting weaker (and I don't find that good), meanwhile markets are happy of the "more free money", but at the same time, the Quantitative Easing program is ended. We should do it right, but U.S. is doing better given the slowdown than a lot of economies.
     
  8. hs0zfe

    hs0zfe Active Member

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    The stock market should be part of the "basket", shouldn't it?
     
  9. crimsonghost747

    crimsonghost747 Senior Investor

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    Inflation is necessary because if you don't have inflation then you have deflation, and that in the long term kills consumption. Would you buy a 2015 model car today if you knew that next year you could get the 2016 model for cheaper than what you would pay for the older model now? Of course you wouldn't, you would wait to get the new product for cheaper. Same principle applies to most costly things... if the prices are trending down then that drives people to wait. And that means money sitting on bank accounts instead of being put towards consumption.

    So inflation needs to exist in the long term. Central banks often set targets and often they aren't too far from that 2% mark right now. Obviously too much inflation is bad too so it's important to stay away from the extremes.
     
  10. JR Ewing

    JR Ewing Super Moderator Staff Member

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    Nope. And employment has improved somewhat since rates were cut to zero 7 years ago, even though the labor participation rate is lower than it has been in nearly 40 years.
     

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