The stock is up 100 points today on news from the most unreliable inflation indicator known to man; the CPI.
In my August 10, 2006 journal post, "The CPI is Useless to Us", I explained why the CPI is a useless inflation gauge.
High Energy prices have had a huge impact on the prices we pay for not only goods, but services also. While global competition may keep the prices of imported items in check, global competition does not impact the prices we pay for labor services such as electricians, plumbers, or even a sub sandwich at Firehouse or Subway.
Here are some comments from Scott J. Brown, Ph.D., Senior Economist at Raymond James & Associates;
"Crude oil prices have risen to two and half times the level of late 2003. For the most part, consumers have continued to spend. In contrast to thirty years ago, most consumers pay for gasoline with credit cards. In the 1970s, if you paid more at the pump, that meant you had less cash in your wallet to spend on other things. The use of credit cards allows consumers to smooth out purchases in the face of higher energy prices and other shocks. However, consumers still have to pay the higher prices. Spending patterns will adjust over time. Thus, higher oil prices have a lagged impact on consumer spending but over time, if gasoline prices stabilize, real incomes will eventually pick up, adding to consumer purchasing power."
"Higher oil prices have also had a noticeable effect on inflation, pushing the CPI to +3.3% in 2004, +3.4% in 2005, and a 4.7% annual rate through the first three months of 2006."
"Of course, there are more pressures on household balance sheets besides oil prices many of which do not appear in the Consumer Price Index. Higher homeowners insurance costs, health insurance costs, college tuition, retirement, and mortgage resets are all putting a crimp on household spending."
