So far this year, the public perception of whether we’re in a deflationary or inflationary environment has tended to turn on the lack of year over year price increases. This has created the impression among many investors that inflation is “tame” despite the fact that prices have been rising all year.
When the the Bureau of labour Statistics reported CPI data last month, it said that prices were 0.2 per cent lower than October 2008. This pretty much white washed the fact that the month over month movement was a 0.3 per cent increase. The cumulative rise in prices over the first 10 months of this year has been 2.8 per cent. But hardly anyone noticed.
But all that is about to change. The year over year comparisons are about flip into positive territory. Economist Bob Murphy points out that on December 16, the government will release the data for November’s CPI reading. At that point, the year over year data will begin reflecting the fact that prices fell dramatically at the end of 2008.
“[I]f November’s prices rise above October’s prices at the same average rate as has occurred so far this year, then the BLS will say that consumer prices are up 1.7 per cent from November 2008,” Murphy writes.
He goes on to explain:
The real fun will come in mid-January, when the BLS has to issue the numbers for December’s prices. At that point the full CPI drop in late 2008 will have worked its way through the 12-month window, and the public will finally realise just how far prices have been rising. Again, if we simply plug in the average price hikes so far in 2009, the government will report in January that the December 2009 CPI was a full 2.7 per cent higher than prices from a year earlier. Thus in two short months the public will snap from thinking we are still stuck in deflation to realising that official price measures have been rising for quite some time.