It looks like someone linked you here to our printer friendly page. Please make sure you go Back to Safehaven.com for more great articles just like this one!

Summary of My Post-CPI Tweets

By: Michael Ashton | Friday, December 14, 2012

The following is a summary of my post-CPI tweets. You can follow me @inflation_guy.

Core CPI only 0.11% unrounded, 1.94% y/y. Large fall in apparel prices partly to blame.
Suspect there may be some seasonal issues since last 3 months were weak in both 2011 and 2012.
Key thing looking forward is that rents and OER both continue to motor higher...and no sign of stopping.
also big drop in 'lodging away from home.' Always some quirky stuff out of 200 item indices, and I don't like to 'ex out' everything.
Core services inflation remains +2.5% y/y; core goods inflation drops from +0.7% to +0.5%.
Owner's Equiv Rent y/y went from 2.140% to 2.125%. Primary Rents went from 2.75% to 2.73%. That's 30% of consumption right there.
Accelerating: Food&Bev, Housing, Recreation (61.1%) Decel: Apparel, Transp, Med Care, Other (32.2%). Unch: Educ/Comm (6.7%)
Transp fell because of Motor Fuel, of course. Apparel because Girls Apparel plunged. Really.
Nothing here disturbs what we see as the underlying dynamic for inflation. Our 2013 forecast range for core remains 2.6%-3.0%.

Most forecasters are projecting a decline in core inflation over the next year. However, the chart below, which I've shown before, illustrates why almost a third of the consumption basket (and 40% of core inflation) is very likely to continue rising. Home prices and direct rents have responded very well to the Fed's aggressive easing campaign, and (with a lag) the 5% rise in the FHI Home Price Index and the 11% rise in the median prices of Existing Homes are being reflected in primary rents and OER.

I've put together a little press release/summary that may be useful for journalists, as we're trying to generate more exposure (and new client inquiry) in 2013 for Enduring Investments. Please drop me a line if you know of someone in the media who ought to be on that list!

Author: Michael Ashton

Michael Ashton, CFA
E-Piphany

Michael Ashton is Managing Principal at Enduring Investments LLC, a specialty consulting and investment management boutique that offers focused inflation-market expertise. He may be contacted through that site. He is on Twitter at @inflation_guy

Prior to founding Enduring Investments, Mr. Ashton worked as a trader, strategist, and salesman during a 20-year Wall Street career that included tours of duty at Deutsche Bank, Bankers Trust, Barclays Capital, and J.P. Morgan.

Since 2003 he has played an integral role in developing the U.S. inflation derivatives markets and is widely viewed as a premier subject matter expert on inflation products and inflation trading. While at Barclays, he traded the first interbank U.S. CPI swaps. He was primarily responsible for the creation of the CPI Futures contract that the Chicago Mercantile Exchange listed in February 2004 and was the lead market maker for that contract. Mr. Ashton has written extensively about the use of inflation-indexed products for hedging real exposures, including papers and book chapters on "Inflation and Commodities," "The Real-Feel Inflation Rate," "Hedging Post-Retirement Medical Liabilities," and "Liability-Driven Investment For Individuals." He frequently speaks in front of professional and retail audiences, both large and small. He runs the Inflation-Indexed Investing Association.

For many years, Mr. Ashton has written frequent market commentary, sometimes for client distribution and more recently for wider public dissemination. Mr. Ashton received a Bachelor of Arts degree in Economics from Trinity University in 1990 and was awarded his CFA charter in 2001.