Signs in place that consumer inflation is here to stay

1923: A German woman feeding a stove with Papiermarks, which burned longer than the amount of firewood people could buy with them.

In 1923 Germany, inflation was so bad that burning money was cheaper than buying firewood. (Photo Credit: CC BY-ND/illuminating9_11/Flickr)

Manufacturing activity and consumer optimism took a nosedive despite a continued upward creep in national consumer prices. The creep has slowed to less than zombie-like pace, however, which indicates that the economy still needs a jolt.

The Consumer Price Index

According to Ameriprise Financial senior economist Russell Price, the decline in manufacturing plus low optimism are much ado about something nobody wants to hear.

“Both of them are reflective of the slowdown in the economy that we have experienced over the last few months,” he said.

The Consumer Price Index, according to the U.S. Department of Labor, was up 0.2 percent in May, versus 0.4 percent in April and 3.6 percent one year previous. May’s under-performance is the lowest CPI since November, according to the Bureau of Labor Statistics.

Rising food prices — up 0.4 percent — didn’t help. Strangely, one economist managed to report that the U.S. energy index fell by a percentage point last month. Within the central bud of that surprise was a 2 percent U.S. gas price decrease. Lower fuel prices didn’t seem to help skyrocketing food prices.

Clothing, shelter and cars getting more expensive

The Consumer Price Index report had more to say regarding price acceleration. According to the New York Times, clothing, residence, recreation and new automotive costs were all on the rise in May, yet demand did not falter. Airline prices, personal care items and sot-weed tobacco went down last month.

Conditions didn’t slack off – they ‘deteriorated’

The choice of words the Times uses to describe the state of manufacturing in New York is telling. According to the New York Federal Reserve, conditions for manufacturers have deteriorated so far in June, marked by a 20-point drop in the manufacturing industry’s conditions index to minus-7.8 points, the first dip below zero since November 2010. Forecasters had pegged a decline that was supposed to have settled at positive 14.

Part of the reason for the dismal manufacturing performance is tied to the decline in auto production following the Japanese earthquake, tsunami and nuclear disaster.

“It affects just about every region,” said Price. “In the manufacturing report, the component shortages were the No. 1 factor, and then the broader softening that went along with the higher gasoline prices.”

Enjoy your $20 watermelon


Consumer Price Index

New York Federal Reserve

New York Times