Inflation Threat Alert: Blue (Guarded)

Kash Mansori takes a look at recent trends in inflation, but first, a few reminders from our Asset Value Security Department (formerly the Federal Reserve):

Recommended Activities

• All Americans should continue to be vigilant, take notice of their transactions, and report suspicious price increases to local authorities immediately.
• Everyone should establish an inflation preparedness kit and inflation plan for themselves and their family, and stay informed about what to do during an inflation.
• Learn more about preparedness at www.inflationready.gov

The Color-Coded Inflation Threat Level System

This is used to communicate with businesses and the public at-large through a threat-based, color-coded system so that protective measures can be implemented to reduce the likelihood or impact of inflation. Raising the threat condition has economic, physical, and psychological effects on the nation; so, the Inflation Threat Advisory System can place specific geographic regions or industry sectors on a higher alert status than other regions or industries, based on specific information about the threat of nominal price increases.

This system was established in Asset Value Security Presidential Directive 1.

Here's Kash with the threat assessment:

Inflation Update, by Kash Mansori: Some new data on inflation has been released by the government over the past week, including new data on the PPI and the CPI. This gives us a good chance to update our inflation picture.

The chart below shows inflation as measured by the CPI and PPI, including both the measures that capture all goods and services in each category as well as those measures that exclude food and energy prices (the "core" rate).

The rise in energy prices over the past couple of months shows up in the upward movement in the overall price indexes for consumers and businesses. But, unlike some, I am not worried about which way inflation is headed. After a bit of a surge in non-energy inflation during the second half of 2006, those inflation measures have moderated and remain comfortably in the neighborhood of 2%.

While the rate of core inflation doesn't give us a complete picture about how the purchasing power of the dollar is changing, it does tell us a lot about how strong inflation pressures are throughout the non-energy economy. The verdict seems to be that they remain quite moderate.